OBR figures support the cuts
IT WAS inevitable that yesterday’s first pronouncements by the newly created Office for Budget Responsibility would cause political ructions, but the initial findings of the independent body were perhaps a shade more complex than might have been expected.
To the surprise of nobody with any kind of grip on reality, the OBR downgraded the growth forecast for the UK economy next year from the range of 3% to 3.5% projected by former Chancellor Alistair Darling in his final Budget ahead of the General Election to a more realistic 2.6%.
However, the level of future borrowing forecast by the OBR is somewhat lower than that projected by the previous government, with a net figure of �544billion expected for the five years to 2015 against the �567bn previously forecast.
So does Mr Darling have a point when he argues, as he did in an interview with the BBC yesterday, that the new Government should curb its plans to cut public spending and increase taxation.
The answer, sadly but necessarily, is “No”, with the findings of the OBR underlining the fallacy contained within Labour’s thinking on the economy.
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Mr Darling claimed that the OBR report “does rather underline the point that I have been making that if you take money away from the economy you run the risk that growth will be lower still.
“This Government has no strategy for growth and if you don’t get growth you won’t get borrowing down.”
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The problem with this analysis is that it rather ignores the scale of the threat posed by the public sector deficit. Despite its slightly more optimistic assessment of borrowing, the OBR states that the structural deficit (that part of the deficit that will not automatically be reduced by economic growth) will actually widen this year from Labour’s prediction of 7.3% of GDP to 8%.
Far from avoiding the risk of a double-dip recession, as Mr Darling argues, a quest for growth which postpones decisive spending cuts would put the UK’s credit rating at risk, with the threat of high interest rates to follow.
This would act as a drag on recovery for years to come. The pain expected in new Chancellor George Osborne’s first Budget next week cannot be avoided.
n It may have come a day too late to be included in the Queen’s Birthday Honours List but, in view of the continuing spat between Britain and America over the BP oil spill in the Gulf of Mexico, one hopes that some form of official recognition for his contribution to Anglo-US relations at this difficult time will eventually be given to England goalkeeper Robert Green.