Scouring the Budget small print
Fraser Nelson 9:29am
This morning's newspapers have a feast of analysis on the Budget. I've covered 15 of
them, and what journalists normally do is spend the day trawling the small print of the Budget document hunting for stories. But this time, the stories seem to have migrated to the Office for
Budget Responsibility's accompanying report, packed with new analyses and metrics —
even disaster scenarios — which those with an interest in UK economics will find useful. The OBR document is now released with the Red Book, and speaks with the authority of government
economists who (unlike the rest of us) have had weeks to chew over Osborne's claims. The OBR must now be considered part of the Budget's small print. For those who are into that kind of thing, here
are some points that jumped out at me:
1) Rejects Osborne’s growth claims. Cameron said this would be the most “pro-growth budget for a generation”. The OBR is not convinced. From Box 3.1. “Some [Budget] measures could affect growth. However, there remains significant uncertainty around the size of its effects …. We judge that there is insufficient evidence at this stage to adjust our trend growth assumptions.” So the Chancellor declares that he has put fuel in the tank of the British economy, but a forensic analysis published by the OBR explicitly disagrees. But given that the OBR has the DNA of the Brownite Treasury, it’s more than possible that it simply doesn’t believe in supply-side economic reform.
2) The cost of Croatia, and our EU membership. The OBR estimates that “the expected accession of Croatia in 2013 … could cost the UK up to £200 million per year in the long run.” Not something you’ll hear William Hague admit. The EU may be forced to tighten its belt in the 2014-20 spending round, says the OBR, but it will let spending rip beforehand.
3) Some 20,000 fewer public sector job cuts. The OBR is also in the business of making a guess about how many public sector jobs will be axed — which can make front page news. It forecasts that for every public sector job that is lost, some 3.25 jobs will be created in the economy. In total: 1.3 million more jobs in the private sector, and 400,000 fewer in the public sector. But it has softened its forecasts, and expects 5.36m such workers in 2014-15, not 5.71m. (Box 3.6).
4) The Killer Inflation Scenario. What happens if inflation doesn’t go down? The OBR does a little war-gaming. If inflation stays above 4 per cent for longer, then base rates would shoot up to 6 per cent, but (it thinks, in table 3.10) employment wouldn’t be hit much. Departmental spending cuts would, in real terms, deepen from 13 per cent to 19 per cent, The OBR itself is optimistic saying it expects “CPI inflation to fall back swiftly in the final quarter of 2011” Mervyn King expected inflation to fall away too, and it didn’t. And that landed us with…
5) The £4.7 billion debt interest bombshell. Many government debt notes (about a third, I’m told) are inflation linked — so when RPI rises, so does the interest it pays on its debt. In 2011-12, the estimated bill for debt interest will be £48.6 billion — a staggering £4.7 billion more than the estimate in the November forecast. This is like a new Afghan war.
6) Osborne’s £3.4 billion bank windfall. If you’d flog the banks now, we’d be £1.6 billion in the red, it says (Box 4.2). But the scenarios they are looking at “imply an estimated eventual benefit to the taxpayer of £3.4 billion”. Not much, when you remember that Brown raised £22 billion from the 3G auctions. The coming 4G auctions (which raised €4.4 billion for Germany) may land Osborne more than flogging the banks.
7) New! Earnings forecasts. The old Treasury never used to give any, arguing that this would interfere with pay negotiations. The OBR is more forthcoming. So we can see very useful forecasts: that wage growth won’t keep catch up with CPI inflation until the end of next year, and RPI inflation by mid-2013. Result: real wage falls, real drop in living standards and real misery.
8) The 50p tax. Last month, when bumper tax receipts came in, I blogged that this was because high earners were sucking forward their income in tax for the 2009-10 financial year (paid in Jan11). The OBR appears to agree, saying that the “particularly strong” receipts represent forestalling “ahead of the introduction of the 50p tax rate.”
9) An odd £700m increase in ‘single use military expenditure’. This isn’t explained properly, and I doubt it’s the bill for those Tomahawks being sent down Libyan chimneys, because it’s for the 2011-12 financial year which begins on 5 April. I’ll update you if I find out more.
10) Trouble expected for IDS welfare reform. The OBR has changed its assumptions about how smoothly the IDS welfare reforms will go, and how many people will appeal. Expecting trouble, it has upped the welfare bill (by £400m in 2012-13) as a result.
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daniel maris
March 24th, 2011 9:58am Report this commentIsn't this OBR just another expensive Quango?
After all, it's pretty useless - already having to adjusting its forecasts by as much as 30% within a few months.
Does it do anything useful? Are we better off for knowing that Croatia's accession will cost us £200M - assuming that it will, of course? Are we better off for being told that firing Tomahawk Cruise missiles is a bloody expensive business?
I get the sense that the OBR is doing all the sorts of things that Treasury officials do but blabbing about it a lot more. But that's not so different from having an FT columnist commenting on government policy. The only difference will be that the OBR costs us a barrow-ful of notes.
Fatbloke on tour
March 24th, 2011 10:25am Report this commentTrevor
The OBR is yesterday's game.
RC will do his best to keep up his profile as a media tart but it has done its job and obscurity beckons.
1) Supply side no, voodoo economics.
2) That is what you get if your policy is widening the EU, not deepening the relationship between the existing members.
The law of the unintended consequence rides again.
4) Do you need to be told again, the true story about inflation is being told by CPI-Y / RPI-Y.
Was Dave the Rave talking about the VAT increase during the election campaign? Forecasts are only based on the information people have access too.
Delaying the fuel duty "inflation" increase until Jan 2012 is part of this process. The 2011 VAT increase drops out and inflation will go down no matter the state of the global / UK economy and so the petrol increase will fly in under the radar.
5) Debt interest as a % of GDP, compare and contrast with the situation under Maggie for a truly shocking situation.
6) Complete and utter tripe, those that are wanting a quick sale are wanting to make a quick buck for themselves.
Germany: 3G = EUR 50bill / 4G = EUR 4.4bill
UK: 3G = £22.5bill / 4G = £ TBD.
Not looking good is it?
The banks are worth a lot, the markets are being played to make sure the private sector get the profits and not the government.
7) Compare and contrast earnings with CPI-Y and RPI-Y, the situation is a little different I think. Falling living standards is down to Sniffy and his predilection for consumption tax.
8) You have tried this line before and came a cropper, please stop as the OBR would not want to be associated with your economic ramblings.
9) Bombs and bullets, we are using up stocks of the old stuff so we will need to buy replacements.
Being the MOD they will be 10% better than the old stuff but cost 10 times more.
10) Dog bites man material, IDS is an accident waiting to happen. Fag packet analysis will mean that many flaws show up at the last minute, genuine heart rending cases, and something will need to be done.
**********
Finally any chance you could look into the OBR's comments that the recovery from the Global Credit Crunch will be longer and slower than the ones associated with the Thatch 1 and Thatch 2 recessions?
Could it be that those 2 were run off the mill post war recessions while the Global Credit Crunch was the biggest financial shock in 135 years?
If yes could you please give credit to AD / GB for getting us through those choppy waters?
justathought
March 24th, 2011 11:16am Report this commentThe media may have missed the publication yesterday of Stanford University's; Sovereign Fiscal Responsibility Index .
Osborne will be pleased that this independent research shows the effectiveness of the coalitions program of restoring fiscal responsibility to our finances.
The index shows that the US is ranked near the bottom at 28th just ahead of Greece who is bottom on 34th.
http://www.tcaii.org/pdfs/SFRI_Final_Report_Executive_Summary.pdf
Verityred
March 24th, 2011 11:34am Report this commentAh Fatbloke, you managed to squeeze in a mention of your old masters at the end, how touching. Your promotion in the Party's Rapid Rebuttal and Smear unit edges ever closer.
Chris lancashire
March 24th, 2011 12:20pm Report this commentVerityred: I didn't bother reading it; it's really not worth the effort and certainly not worth gracing with a response.
Paddy
March 24th, 2011 12:48pm Report this commentFatman: We are still feeling the effects of the Brown budgets....and will be doing so
for some considerable time.
So pleased he wasn't in Parliament yesterday....too ashamed, eh
Do not mention Margaret Thatcher in the same post as Brown and Balls.
She was the best PM we ever had.
I can remember Maggie sorting out the mess Callaghan left in 79.....and Wilson closed more coal mines than Maggie ever did.
Dimoto
March 24th, 2011 1:08pm Report this commentThe OBR seems to have adjusted it's projections in a cautious direction, in line with the present public mood.
Which has to be sensible.
Point 1) is a bit unneccesary, everyone knows there is no room for "growth stimulants" and even if there was, it wouldn't necessarily be a good idea.
Osborne needed to change the mood and encourage business, which he may have done.
"A Budget for Growth" was always RedTopese, and not to be taken seriously.
Shame the journos are relentless in their doom-mongering.
Fatbloke on tour
March 24th, 2011 1:31pm Report this commentYappy @ 12.48
Oh yes the Blessed Margaret, if you can can decimating UK privately owned manufacturing not once but twice something to be proud of then your idea of success is different from mine.
Add in the fact that she hobbled the Navy and lost the Falklands, she really was some gal.
Away and throw shite at yersel ya wa'lloper.
Mr. Green
March 24th, 2011 1:35pm Report this commentWell said, Paddy.
daniel maris
March 24th, 2011 1:36pm Report this commentI think the government and OBR are overestimating growth. Given we are a net importer of people, to the tune of about 250,000 per annum our natural growth rate shoudl be about 0.5% with nothing else happening, purely because of teh extra population. Also, because they probably use the CPI as oppose to RPI to adjust the growth figures we are probably overestimating growth again. I reckon the MINUS 0.6% of the last quarter should realistically be put at -1.3% taking both the inflation and population factors into consideration and that accords much more with what is happening on sales and so on.
Percy
March 24th, 2011 1:43pm Report this commentLooks like Brown’s bonkernomics has been replaced by Osbourne’s pieintheskyernomics.
Just seen that retail sales have cratered again, still the 50p saved from filling up an SUV should help sort that out.
michael
March 24th, 2011 2:29pm Report this commentThe way to growth... splurge a whacking dollop of freshly pressed tax wonga on a Quangocratically enriched crony.... suitably remunerated, said state agent wielding several directorships can illicit some hugely overinflated PFI whim on the understanding that his stakeholding in the preferred supplier will be generously caressed.
This whim is courtly tacked onto a whole series of other whims by the 'stats-to-go' Quangos, and subject to the regulatory cash in hand bonuses, exponential growth will drive the economy.
Sir Everard Digby
March 24th, 2011 3:19pm Report this commentFatBloke,
Brevity is the sister of talent. Your verbal tsunamis become more and more impenetrable by the day.
Olaf Rye
March 24th, 2011 3:33pm Report this commentCredit to Gordon Brown for getting us through the financial crisis ? Remember when he said that Britain was best placed to weather the storm ? Well, that was rubbish ! We were taxed and regulated so much by his regime, and he had borrowed so recklessly in good times, that there was no room for anyone but to cut spending. Moreover, Brown turned on the printing presses (especially when the financial problems struck) and this is pushing inflation as the currency has been devalued by roughly 25%. We will not see economic growth until public and personal debt is reduced. Of course, the twelve years of economic growth under Labour was based on debt and nothing more. Not much talk of these things in socialist circles where money still grows on trees and cuts never need to happen ! Fucking dolts with such arrogance that they think they understand economics.
Fatbloke on tour
March 24th, 2011 5:04pm Report this commentSED @ 3.19
Fair point but 10 points require 10 answers.
Well nearly, I forgot about No.3, employment so you were saved a scathing analysis of Sniffy / Trevor and how the slash and burn in the public sector will hobble the private sectors ability to create jobs.
Unfortunately we live in interesting times.
TGF UKIP
March 24th, 2011 7:01pm Report this commentInstead of yesterday's dud which will do little for the country and absolutely zilch fo the Tories so crap was the political communication, here from Iain Martin is the Budget which could and should have been given. It's also a Budget which would have got loud CH applause too
http://www.dailymail.co.uk/debate/article-1369407/BUDGET-2011-The-speech-George-Osborne-SHOULD-made.html
Verity
March 24th, 2011 7:41pm Report this commentI don't know who that man is, but did his maid throw his tie into the washer alone with his shirt and the colour ran?
I wonder why he thought it was OK to wear this outfit out of the house.
Chris lancashire
March 25th, 2011 11:16am Report this commentVerity: It's Robert Chote and he's going through a purple patch.
jrharmer
March 25th, 2011 8:57pm Report this commentWhy do we need the OBR (headed by Robert Chote when we have the IFS an independently financed organisation, doing much the same job and better (they said so publicly ) which was headed by the same Robert Chote.
Kram Ekosum
March 25th, 2011 11:47pm Report this commentFat bloke on tour - very clever, does the use of 'Trevor' subtly imply your hidden snobbery and racism or am I mistaken? As for You, AD, GB, BB, Alan and his acolytes... Oh please spare us. Heaven forbid; God will be your judge! Better head down to Rome & join AB if he hasn't gone to Cyrene.
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