Is George Osborne a grade-A student?
- 24 February 2012
"The government has borrowed £93.5bn in the tax year to date, down from £109.14bn in 2010/11. Chris Williamson, chief economist at Markit, said the figures meant the government was on track to meet or even beat its borrowing target of no more than £127bn this year." This means that the structural deficit is now back below the psychologically important £1trillion figure – just £989bn to go.
This was not a one-off. Public sector borrowing has been falling. Simon Ward, chief economist at Henderson and Mindful Money blogger, says that the real picture may be even better: "A bigger story that may go unreported, however, is the faster decline in the "old" PSNB measure that includes the surplus of the public sector banks and net interest income of the Bank of England's Asset Purchase Facility (APF). PSNB is on course to fall from £109 billion last year to about £85 billion – £16 billion lower than the OBR's November forecast and equivalent to "only" 5.6% of GDP."
So a big tick for Chancellor Osborne then? Yes and no. The reduction in the deficit was largely driven by a fall in local government borrowing and a rise in tax receipts. As such, it partly reflected economic stability rather than the Government's austerity measures per se. There are plenty of his political opponents who believe that the deficit will not be addressed by Osborne's approach, despite these promising early signs perhaps an A- is more appropriate than an A-star.
Of course, austerity is not useful if it destroys growth. To date, it appears not to have done, which would be another tick on Osborne's report card. "The UK economy grew by 0.6% in the three months from July to September, slightly faster than previously thought." However, government figures have had to be revised down continuously. This may be more a function of the crisis in the Eurozone, but it does mean that Osborne perhaps doesn't deserve full marks on growth.
Equally, he is probably looking at a ‘could do better' on private sector growth. This has been the much heralded solution to Britain's economic stagnation. There are signs of life, as this piece from recruitment giant Reed suggests, but unemployment is still high.
The CBI is generally supportive of Osborne's measures to encourage public sector expansion, but believes the Chancellor needs to do more.
"In the context of constrained government and household spending, economic growth in 2012 and beyond must be driven by the private sector," said John Cridland, director-general of the Confederation of British Industry in a letter to the Treasury. "In particular, corporate balance sheets hold the potential for much stronger private sector investment, but business confidence remains weak." Cridland broadly endorsed a raft of pro-business proposals from the chancellor set out in his autumn statement last year and his budget last March." Osborne is perhaps looking at a B+ on private sector growth.
The final area of attention for Osborne would be shoring up the UK's credit rating. Until recently, he seemed to be doing well on this. S&P had praised his austerity measures, the UK's cost of borrowing had been kept low and the UK had kept its much-prized AAA rating. But then Moody's put a dampener on that by putting the UK on credit watch due to "the increased uncertainty regarding the pace of fiscal consolidation in the UK" and "materially weaker growth prospects":
As yet Moody's in the only rating agency to have the UK on negative watch. Equally, with only a handful of countries now retaining an AAA rating, Osborne deserves a few extra grades for hanging on to it so far. The verdict: B+.
For the reduction in public sector borrowing, the current avoidance of recession and the retention of the UK's AAA rating, Osborne deserves some credit. He may need a bit of extra tuition on generating growth. He may not be Mervyn King's star pupil, but he has shown himself a quick learner.
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