George Osborne: From good Darling to bad Darling.

As Duncan Weldon says, the consensus forecast for the UKs future borrowing indicates that the Government is going to miss their borrowing target.

Another way of thinking about this is that the fiscal forecast is now slipping from the “Good” projections, whether that of Alistair Darling in March 2010, or of the OBR subsequently, back towards what you might call the ‘Bad Darling” scenario: what the deficit would have looked like if the coalition hadn’t announced it’s June Budget changes.

You can see the “Bad Darling” scenario in the IFS Green budget, chapter 3, where the authors try to seperate out what the Deficit “would’ have been forecast, if the government had not implemented the fiscal tightening proposed by George Osborne.

You can see the results below. The red line is the deficit as projected by Alistair Darling in March 2010 – the “Good Darling” line.

The Brown line is what the IFS think the deficit would have been projected in November 2011 – had the coalition “extra tightening’ not1 been introduced. Call this the “Bad Darling” line.

The yellow and green line represent the government/OBR projections. Note how closely they track the “Good Darling” line.

The Black line is the Treasury’s new consensus forecast.

It’s now much, much closer to the ‘Bad Darling” line than the “Good Darling” projections.

 

The IFS said before the Budget that:

“All things considered, it seems likely that, in the absence of the additional fiscal tightening announced since the general election, borrowing would have been on course to be closer to £76 billion in 2016–17 than to the £26 billion that was forecast in the March 2010 Budget.”
The consensus forecast now makes it look like that even with the tightening, the 2015/16 projection is only 13bn below the worst projections, a level the IFS described as unsustainable.2
This could well put us in the worst of all possible worlds, come 2015.
If Plan A has only got us to the “Bad Darling” scenario, we will be faced by a high deficit and public finances that are widely regarded as unsustainable.
Further, if growth is anywhere near the 2% the consensus suggests, it will be very hard to argue for a fiscal stimulus package, since the deficit will still be so high, (and if we’re being really pessimistic, growth will mean the money might have somewhere else to go).
I make no bones about the fact that I think this is George Osborne’s fault.
Unfortunately, the consequences of it will land with his successor.
——
You can see the evolution of the projections in the following IFS chart:
  1. In my rush to publish I originally missed out this “not”. Oops! thankfully Richard N caught the error in the comments []
  2. Specifically the IFS authors said “had the last Labour government and the current government not announced any permanent net tax increases or spending cuts over the last few years, public borrowing in the UK would have been left at an unsustainably high level.” P50 here []

4 Responses to “George Osborne: From good Darling to bad Darling.”

  1. Richard Nabavi

    If I understand your argument correctly, the position is as follows

    – Darling forecast some numbers, based on some unknown decisions which we were never told about, but with some top-line figures. They were not supported by any independent body, and no-one believed them, of course. That’s the red line, and you can forget it since it has no independent basis.

    – Osborne became Chancellor, actually took some decisions, and laid out a plan.

    – The independent OBR made (in 2011) forecasts of what would happen HAD OSBORNE NOT TAKEN THE DECISIONS HE DID (this is the brown ‘bad Darling’ line – I think you are have made a mistake in your article because you describe it as “had the coalition “extra tightening’ been introuduced” – I think you mean NOT introduced.)

    The OBR also forecast what would happen on Osborne’s plans (the green line). The effect of Osborne’s decisions, as at the OBR estimate of Nov 2011, is the difference between the brown and green lines.

    – Meanwhile, things have got worse in the Eurozone and in the world economy. So the consensus (and no doubt the OBR) forecasts have to be adjusted for the worse. We don’t of course yet have the OBR updated forecast, so you seem to be using the ‘consensus’ forecasts instead as a proxy.

    – You then compares this with the brown line (OBR forecast, on Darling’s ‘plans’, as at Nov 11). Oops that’s a bit of a logical howler, no?

    1) You’ve forgotten to update the brown line to reflect the downturn in world prospects since Nov 2011. Admittedly that’s hard to do, but only a fool would try to maintain that a forecast made in Nov 11 would still be valid today – growth forecasts in virtually all European economies have been downgraded.

    2) You are not comparing like with like – the ‘consensus’ forecast was already more pessimistic than the OBR forecast.

    Thus you are not only comparing the ‘bad Darling’ forecast made a year OK with a forecast made today, without updating the ‘bad Darling’ forecast, but you are also comparing it with forecasts produced by less optimistic sources than the OBR.

    A double whammy in your logic.

    And then you conclude it’s Osborne’s fault. But how can it be? Osborne’s decisions are already in the forecasts. You can’t have it both ways – believing the OBR forecasts are right when it suits you, but not when it doesn’t.

    Reply
    • hopisen

      First, You’re right about the missing ‘not’ – a type. I’ll correct!

      I’m saying that during in the March 2010 Budget, Darling set out what a reasonable deficit reduction package would look like in terms of outcomes. I call this the ‘good Darling’ line (I make no comment as to whether he supplied enough policy about how this would be achieved, but obviously I think not)

      Since then, that broad path of official projected deficit reduction outcomes has been more or less consistent with that path.

      One can argue over some more frontloading of cuts, shifts in balance between tax inc and spending cuts, but the broad desired outcomes are the same.

      The difference is that for whatever reason, whether domestic demand deficit or euro crisis, the _underlying_assumptions_ behind that ‘Good Darling’ line became increasing hard to sustain, and required bigger delivered cuts, higher tax income, better growth assumptions to make work.

      However, it now looks like that these aren’t happening, so we’re seeing the consensus shift back to what IFS said would have happened even without the Osborne interventions.

      You can make lots of arguments about why this is happening – from worsening global picture to falls in domestic demand (and that’s where I’d differ from you, I suspect), and it’s obvious where i stand on that, but that’s not really the point I’m trying to make.

      Instead I’m trying to make point that the data seems to be pointing us to the more pessimistic end of the projected deficit outcomes, and if that’s the case, then the post 2015 govt will have a very difficult task indeed, as it’ll be in a far worse position than Darling forecast back in 2010 and most govt forecasts have suggested (after making their policy alterations, as you rightly point out) since.

      Reply
  2. Richard Nabavi

    I certainly agree with your last paragraph. Even in the most optimistic scenario, whoever is Chancellor is going to have to make some very tough decisions. It’s unclear to me whether voters have quite taken this on board; the fuss about relatively innocuous savings, such as the effective withdrawal of Child Benefit for the well-off, suggests not.

    Reply
  3. Rick Sticks Economics Nix Fix

    > In my rush to publish I originally missed out this “not”. Oops! thankfully Richard N caught the error in the comments

    RIchard N: “This is the operative statement. The others are inoperative.”

    Reply

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