Chancellor bats away Labour’s 1930s claims

 
Chris Papadopoullos
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CLAIMS that a Conservative-led government will take state spending back to 1930s levels were shot down yesterday as Osborne announced austerity would end sharply at the end of the next parliament.

The claim had been disputed by economists who questioned the calculations and comparisons behind it. Nonetheless, it had been repeatedly made by Labour in recent weeks.

However, the Office for Budget Responsibility (OBR) – the UK’s fiscal watchdog – is now forecasting a fall in total spending to 36 per cent of GDP by 2020. That is fractionally higher than the previous post-war lows of 35.8 per cent in 1957-58 and 35.9 per cent in 1999-2000.

The OBR had previously said spending as a share of GDP would decline to levels last seen in the 1930s, but the government plans now involve lifting spending in 2019-20, the final year of next parliament.

Government consumption – spending that excludes transfers such as welfare payments – will fall to from 19.7 per cent in 2014 to 16.1 per cent by 2019 – equal to its 1964 level and joint lowest going back to 1948.

Meanwhile, OBR chairman Robert Chote said yesterday that public service spending over the next five years would have a “rollercoaster” profile.

Total state spending this year is expected to come in at £742.6bn. Spending is set to rise to £759.2bn in 2018-19 before a considerable increase in spending in 2019-20 to £797.3bn.

Most of the volatility comes from spending on public services.

In 2016-17, real spending on the day-to-day running of public services will drop by 5.8 per cent and then 5.4 per the year after.

In 2019-20, it grows by 4.3 per cent.

OFFICIAL FORECASTS

■ Economic growth is expected to be 2.5 per cent this year and 2.3 per cent in 2016, revised up from 2.4 per cent and 2.1 per cent. However, 2017 growth has been revised down slightly.
■ Unemployment is expected to fall to 5.3 per cent this year and 5.2 per cent in 2016, down from previous forecasts of 5.4 per cent and 5.3 per cent respectively. It is currently 5.7 per cent.
■ Inflation to return to the two per cent target relatively slowly, partly due to the lagged effects of sterling’s recent appreciation. The near-term fall in inflation is expected to boost real wage growth to 1.4 per cent this year – the first year of material growth since the crisis.
■ Public sector net borrowing (the deficit) should fall to £90.2bn or five per cent of GDP this year – down 41 per cent in cash terms and 51 per cent as a share of GDP relative to the post-crisis peak in 2009-10.
■ Looking further ahead, on the basis of the medium-term spending policy assumption provided to us by the Government, the OBR expects borrowing to fall in each year and to reach a small surplus in 2018-19.
■ Relative to December forecasts, public sector net borrowing (PSNB) is forecast to be down by £1.3bn a year on average between 2015-16 and 2018-19.
■ Total spending is expected to be £746.2bn this year followed by £740.3bn next year, £743.9 in 2017-18, £759.2bn in 2018-19 before rocketing in 2019-20 to £797.3bn.

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