The Treasury was yesterday backpedalling from unhelpfully detailed reportsabout George Osborne weighing specific tax cuts for next week’s budget, fearful no doubt, of spoiling any surprise on the day. The chancellor is also conscious thatsuch a late-in-the-day giveaway could confuse his campaign pose as the man for tough decisions. The question, however, is whether he will be able to resist. For with cheap petrol putting some fuel into the economy’s tank, and falling inflation reducing debt-servicing costs, there is apparent scope for a fiscal loosening of, perhaps, £5bn a year.
The Office for Budget Responsibility’s reports may indeed point to such room for manoeuvre, but only because its methods are flawed. It was on the strength of OBR tables that Mr Osborne was able to brag in his autumn statement that “by 2019-20 Britain is now predicted to have a surplus of £23bn”. But as the Institute for Government points out, this “prediction” was no such thing. It was rather an incoherent mish-mash of technical outputs of macroeconomic models, and the chancellor’s own cavalier presumptions about expenditure which nobody – the OBR included – believes.
The healthy-looking surplus on the bottom line is swelled by a “planning assumption” that real expenditure per head on fields such as transport, housing and policing can be cut by an average of 57% of the 2010 baseline by the decade’s end, which is to say that such services will be more than chopped in half.
How is this to be done? What is it that the state does now that it will stop doing? Nobody can say. The OBR acknowledges this, and pointedly asks whether this renders such vast cuts unrealistic – and yet it continues to build them into the tables. While these wild Treasury assumptions remain unsupported by any Treasury policy, only adherents of the Enron school of accounting should be willing to afford them a line on the ledger. This stuff matters. If Mr Osborne does indeed choose to cut tax this month, he will hold up OBR tables as proof that he can do so without jeopardising that precious surplus a few years down the line. But in truth, by surrendering revenues, he will be locking the state into delivering cuts on an impossible scale, cuts for which the plans simply do not exist.
That works out at the same level of cuts as 2010-2015 at the same rate, for planning that was 37% according to the NAO but would have to be much greater this time on a 2015 base as the base is 37% lower, By my calculations that reduces funding for planning from 63% of 2010 base in 20114-2015 to 26% of the 2010 base in 2019-2020, a cue of around 50% on the 2015 base. Of course even the chief sec to the Treasury, the minister responsible for public spending thinks this is nonsense.