Osborne gets an ‘A’ for moving fiscal goalposts

IT is a common joke that some tests are impossible to fail – the driving theory exam, for instance, or an A-Level in General Studies. You would expect George Osborne’s fiscal mandate to be slightly more taxing. But you’d be wrong.

Because the chancellor’s two fiscal targets test very little, save for his ability to move the goalposts by several miles when things don’t go his way.

The first, that the structural deficit should “be in balance” in the final year of the “five-year forecast period”, is a rolling target. If he fails one year, he can roll it over to the next when the forecasting period shifts forward by 12 months.

So yesterday the OBR said the government was “on course” to meet its target by 2016-17, after Osborne announced a further two years of smallish public spending cuts. If it becomes apparent next year that the outlook has worsened, he can push the target forward by yet another year, and do the same the next, ad infinitum. Essentially, he can take as many re-sits as he likes.

Second, the chancellor has committed that national debt as a proportion of GDP should fall between 2014-15 and 2015-16, a target that is more ridiculous than the first. It means he can run up the national debt by as much as he likes over the next four years, as long as it falls in the fifth.

And that is exactly what he is doing. Public sector net debt will now peak at 78 per cent of GDP in 2014-15, before falling by a minuscule 0.3 per cent to 77.7 per cent in the following year. Technically, he is on course to meet the target.

But debt will be far higher than expected at the March Budget just eight months ago. Back then, the OBR expected it to peak at 70.4 per cent in 2014-15, before falling to 69.1 per cent. So public sector net debt will be a staggering 8.6 per cent higher than expected in 2015-16, even on the OBR’s ridiculously optimistic assumptions – but Osborne still doesn’t flunk the test. It must be the only exam in the world that is easier to pass if you fail your coursework.

In setting his fiscal mandate, as in so much, Osborne has learned the tricks of his trade from Gordon Brown, who famously changed the terms of his “golden rule” in 2005 before abandoning it altogether when the financial crisis hit.

Like Brown, he had nothing to offer yesterday save for a handful of micro-measures, many of which solve problems of his own making. Take the £250m package of relief for firms hurt by a tidal wave of green regulation – a drop in the ocean compared to the £3bn carbon stealth tax he hammered them with at the last Budget.

Still, at least he can say he has passed a test. Impossible to fail. And written by himself. At least Gordon would be proud.

david.crow@cityam.com

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