One wonders why George Osborne stayed in his job, because the future economic news is so bad. The economy is heading for a generational disaster, an event that, pre-election, the Conservatives warned of, but their post election policies have ensured: decades of slow growth and high debt.
The latest average of private sector forecasts from HMT is that by 2014-15 this coalition will have failed to even halve borrowing.
Borrowing in 2009-10 was 11.1 per cent of GDP. The forecast for 2014-15 is for borrowing to be 6.0 per cent of GDP – that’s versus an OBR current forecast of 4.3 per cent.
But failing even to meet Alistair Darling’s target is not all that will be revealed in the Office of Budget Responsibility’s (sic) autumn report.
Taking into account the new forecasts for slower growth, and thus a smaller economy in 2015, the increased borrowing could have driven total debt at the end of this Parliament to as high as 83 per cent of GDP, up from the original 69 per cent promised by Osborne in June 2010.
These City forecasts don’t include Osborne’s £50 billion of lending he announced last week, (approximately another 3 per cent of GDP).
Including this liability, then, Cameron and Clegg’s increase to national debt will almost double that of either Brown or Major, increasing debt by a record-breaking 33 percentage points of GDP. But this increase also brings debt to the Conservatives’ own red line of unacceptable levels of debt: 90 per cent of GDP.
Just before the General Election, Mr Osborne made the following warning on debt levels:
“The latest research suggests that once debt reaches more than about 90 per cent of GDP the risks of a large negative impact on long term growth become highly significant.”
The long-run cost is growth of one percentage point lower, but at that time we didn’t know the duration of this burden; now we do.
The researchers returned this year with the following bleak news: it takes 23 years to reduce public debt levels. The researchers found 26 cases of countries’ public debt levels exceeding the 90 per cent debt to GDP ratio, and while there were some shorter periods of debt reduction immediately following either of the two world wars, unfortunately 20 of the cases lasted more than a decade.
This is the fate the coalition’s policy has prepared for us.
The coalition won’t have eradicated the deficit. They won’t even have halved it. In fact, they will have broken their own red line of the no-go zone for debt. It’s extraordinary that, even though the City is forecasting this will all be revealed in the autumn OBR statement, Osborne stayed.
He must be gambling that he can take all the heat for this disaster. But because it only took 2 years of policy to achieve this generational risk, this is an historic level of incompetence and the blame will not be contained to No. 11 Downing Street.