Outlook and Consequences

Compass have just produced a document outlining what they call Plan B+ "Rebuilding Britain and a Good Society", it's an interesting read and I'll probably post more from it in a later article. This blog post, however, is about where we are going at the moment, and what Osborne's Plan A has achieved. Plan B+ gives a good narrative.

The deficit that everyone goes on about is technically known as the Public Sector Net Borrowing (PSNB) and it is usually quoted as a proportion of Gross Domestic Product. A deficit is never good, and it is puerile and wrong of Conservatives to suggest that Labour wants to keep generating deficits.

Much as I hate using a household analogy for the economy, I will make an exception for this one quote:

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

This is the Micawber Principle, after Wilkins Micawber who said this in David Copperfield. Governments have to aim for happiness rather than misery. Micawber's misery was a deficit of just 0.1% of total income, the UK government's target is much larger. The Maastricht Treaty says that governments must not exceed a deficit of more than 3%, and during the last government, right up until the financial crash, the UK deficit was below this figure. It is nonsense to say that Labour mishandled the economy (and the public realise this, Coalition MPs find it difficult to spout the trite statement "the mess we inherited").

As a result of the financial crash and the "automatic stabilisers" (that is, increases in welfare payments to pay for people put out of work by the recession) the deficit was 11% in 2010, clearly unsustainable. Just before the 2010 election Alistair Darling's final budget presented a plan to cut the "structural" deficit by a half over the period to 2012/13. This was ambitious, and would have involved pain. However, the Darling plan said that there would be real terms flat funding for the NHS, so it is completely untrue for Conservatives to say that Labour would have cut the NHS budget. Osborne's plan was to cut the deficit faster and eliminate the "structural" deficit entirely by 2015. The sad thing was that no one in the media disputed that this was even possible. As we have seen over the last two and a half years, it wasn't.

The Compass document show this very well in the following table:

The first line is the Darling Plan, the second line is the Osborne Plan and the third line is the adjusted plan after Osborne admitted in the 2012 Autumn Statement that he had failed comprehensively to deliver what he had promised. It is clear from this table that by 2012/13 the adjusted Osborne plan was behind the Darling Plan, whereas Osborne had promised that the deficit would be significantly less at that point:

"Labour had planned £42 billion of spending cuts and tax rises during the 2011/12 and 2012/13 tax years. The tax and spending plans announced by George Osborne in the June 2010 Budget and the Autumn 2010 Spending Review added £22 billion of austerity measures by 2012/13 on top of the Labour plans. And yet, despite all this extra austerity, the deficit is closing much more slowly than was forecast in the June 2010 Budget. George Osborne does not now expect the UK economy to achieve “cyclically adjusted budget balance” – i.e. eliminating the ‘structural’ deficit in the public finances – until 2018, three years later than originally planned." 

Indeed, the government appears to be going backwards, as Compass puts it:

"This is worth emphasising: Two and a half years after the Coalition took office, its central self-appointed aim of closing the “structural deficit” is further away than when it first came to power! At this rate, we can expect that by 2015, the aim will be to close the structural deficit by 2021."

The last sentence is chilling. At the 2009 Conservative Party Conference Osborne promised us five years of austerity and this marked the start of the decline of Conservative poll ratings and this decline meant that Cameron was denied a majority in 2010. In the Autumn Statement last year, Osborne adjusted his plan and promised us eight years of austerity. Compass say that it is more likely to be eleven years. To put this in context, after the second world war the country suffered a period of austerity while infrastructure and industries were rebuilt. (In addition, the country suffered one of its worst winters on record in 1947.) Austerity lasted until 1954, that is, nine years.

There is clearly something wrong if a government, blessed with infrastructure that has not been bombed to pieces, and an educated and healthy population, will give us austerity for longer than after the war when the country was in a far worst state.

So where does this leave the NHS? Under severe threat. We already have an "efficiency saving" target of £20bn (that is, assuming a 4% increase in demand, in 2015 the NHS will deliver 20% more care for, in real terms, the same money as it had in 2010). Very few people think this target is possible, and indeed, the original target set by Andy Burnham in 2010 was £15bn to £20bn, but the Tories have insisted on the upper target. The extension of austerity means that the NHS will have to "save" more. Roy Lilley quoting Prof John Appleby reckons the target will be £50bn by 2020. Lilley says that this is not possible, and an NHS faced with this challenge will revert to co-payments. Osborne's mismanagement of the economy will have dire consequences on our NHS.