£30bn of extra cuts keep Osborne on track, just
Here's my snap assessment of the Autumn Statement. First the big analytical takeaways:
- The government will only just hit its self-imposed target of eliminating the structural deficit by 2016. The OBR document says its central forecast is to get rid of the structural deficit by 2016-17 but only by "a total discretionary cut in non-investment spending and in the CACB of £30bn or 1.5 per cent of GDP in 2016-17" - that is £30bn of extra austerity, in the form of pay freezes in the public sector and down rating of tax credits
- George Osborne will borrow £111bn more than Alistair Darling projected over the parliament
- The money to bring forward infrastructure projects is coming from further suppression of public sector workers' pay, from overseas aid, from tax credits and by radically moving forward the date of retirement at 67 to 2026.
There is a fair bit of tentative dirigisme in there: a national infrastructure plan; transport links upgraded with macro-economic design; exemption from carbon targets for crucial industries; 100% capex tax exemption in the north of England.
It poses the old question in a new way: can we stimulate a new kind of growth, based on manufacturing and exported goods in time to rebalance the economy; and can we avoid a second recession by printing money for long enough so that the £111bn Osborne is taking out of demand does not tank the entire economy.
But none of this factors in the results of the euro crisis. As I write the evidence of a credit crunch in the European banking system is spilling out. Even if Merkozy get their act together and avoid Eurogeddon, it is going to hit growth in our biggest export market.
I think this changes the "Plan A vs. Plan B" debate as follows: Plan A is significantly amended - there will be a high chance of missing the fiscal target; but Labour's "Plan B" must take account of the OBR's damning judgement about what Labour did to the structural deficit.
We are now about to find if a bit of dirigisme, a lot of austerity, and swathes of printed money can a) prevent recession b) turn the economy around c) get a coalition of Conservatives and Lib Dems elected - should they wish to be so - in 2015.
I don't think this will provoke a wave of public sector strikes on top of the pensions unrest already under-way. What it does is tee up a much bigger electoral pitch by Labour to the public sector workforce.
There is now no chance of a sustained recovery, either in the real economy or the public finances, by the time we get to the pre-election period.