Here is a little quiz for you. When is the right time for tax cuts? Is it:
When the total of government debt is rising and is expected to peak at 98.6% of GDP?
When the government has had to borrow £119 billion so far this financial year?
When schools are collapsing because their maintenance and repair budget has been slashed?
When the Royal Navy is mothballing ships to save money?
When the equipment budget at the MOD has a £40 billion black hole in it?
When there is a war in Europe?
When the NHS is on the edge of collapse for lack of money?
When Victorian-era diseases of malnourished children have started to reappear?
Give yourself a pat on the back if you answered YES to all of the above. Give yourself a bonus point if you also pointed out that all the tax cuts will have to be paid for with further cuts to departmental spending and another extra point if you noticed that taxes are already at a post war high, are rising, and any tax cuts the government can afford now will not be enough to stop them rising further.
I imagine that the readers of The New European can all spot trick questions a mile off and therefore you all got 10/10. Well done.
But unfortunately, the joke ends there. Because that smarmy smile you can now spot on the lips of Jeremy Hunt is down to one thing. The Office for Budget Responsibility thinks he is £13 billion better off than previously thought. He will still be borrowing many tens of billions of pounds in the coming years, but not quite as many tens of billions as he planned.
It is also £13 billion that quite probably doesn’t exist. It is the gap between what the government was planning to borrow over the next five years or so and how much it may actually have to borrow – so it’s a guess. As the OBR points out itself, £13 billion is a very small amount of headroom and is heavily exposed to changing assumptions on interest rates and other key variables. As the head of the OBR Richard Hughes puts it: “is very small relative to the forecast errors inherent in any forecasting process, including ours”.
This week has also seen the IFS enter this debate – its latest report is bleak. “The next government is likely to face some of the most difficult economic and fiscal choices the UK has faced outside of pandemics, conflicts and financial crises.”
It also states that: “A combination of high debt interest payments and low expected growth is forecast to make it more difficult to reduce debt as a fraction of national income than in any parliament since at least the 1950s.”
What’s more: “A new government will inherit taxes at record levels for the UK (though still low-to-middling by European standards); living standards that have endured a record-long stagnation; and public services – health, local government, prisons, the justice system – that are visibly struggling, and performing less well than they were back in 2010. Yet current spending plans imply further cuts for most public services other than health.”
In short, the government’s own advisors, the OBR and the leading fiscal research body in the UK, the IFS, are telling us all that the government cannot afford tax cuts, that taxes need to rise, that growth is pathetic and public services are collapsing.
But still Jeremy Hunt has that smarmy grin on his face. The Tories will try to cut taxes before the election and we are all going to pay for it.