The chancellor’s “new settlement” for the public finances is a “political ploy”, says Martin Wolf in the FT. In order for the government to achieve an overall fiscal surplus without taxes being raised (there is also a planned law not to raise the main rates of income tax, national insurance and value added tax until 2020), spending must first be cut, and then kept level relative to GDP, which has been achieved only twice in the past 70 years.
If Labour supports the ploy, Labour embraces the concept of a relatively small state. If it opposes it, it is condemned as a tax-and-spend profligate. But politics aside, this “obsession” with public debt is unhealthy. Public borrowing is not always an evil: it is quite appropriate to borrow to invest and it makes more sense to cut debt when the economy is booming and interest rates aren’t on “the floor”.
Budget deficits are common all over the world and aren’t necessarily a problem, agrees Jon Stone in The Independent. In Britain, budget surpluses have been “the exception rather than the rule since Britain’s economy was dominated by free-market liberalism”.
Since 1948, there have only been 12 surplus years. Still, this isn’t in itself a “mad idea” and Osborne isn’t the first chancellor to “seek comfort in rules”, says an editorial in The Independent. Remember Gordon Brown’s “Golden Rule” (which he then broke)?
Nigel Lawson had a balanced-budget rule. Geoffrey Howe had the Medium-Term Financial Strategy. All passed into history. Osborne’s instincts may be “sound”, but we can’t anticipate “unknown unknowns”. If, for instance, Britain faced deflation and the economy badly needed a stimulus, it would make little sense to run a budget surplus.
Not that an imminent budget surplus is likely, says Jeremy Warner in The Daily Telegraph. The Treasury looks to deliver one by 2018/2019, but given the overly rosy view of the economic outlook and the pressures brought to bear by our ageing population, Osborne will probably still be promising that “elusive balanced budget” when he heads for the polls in 2020.