George Osborne will likely have been spluttering into his cornflakes on Friday. Not at the news the Financial Times has duplicated the models of the Office of Budget Responsibility. But at the FT’s conclusion that there is a £20 billion black hole in the public finances necessitating an extra year of austerity.
The timing for the Chancellor could barely be worse, being a little more than a week from the Budget. But, in all likelihood, if the FT’s findings are credible – and there’s absolutely no reason to suspect they might not be – the Budget might be the least of Mr Osborne’s problems. The Government will, of course, be aware of the state of the public finances and the Budget will at this point be (hopefully) largely written – although delivering it might quickly become a less pleasant experience for Mr Osborne, who would have wanted the opportunity to demonstrate the Government’s economic credibility and the wisdom of his approach.
The greater risk is long-term. The Conservative General Election narrative will rely heavily on the suggestion of their economic credibility and a lack of Labour credibility. Put simply, the Tories will use the argument of ‘Labour got you into this mess, we’re the ones that are getting you out’. An extension in the era of national belt tightening is unlikely to help sell this argument to a public that has grown increasingly tired of a rising cost of living. It could, quite simply, take away a major weapon in the Tories electoral arsenal and could undermine wider electoral strategy if it means that Ministers have to look again at the likes of ring-fencing the NHS budget.
That’s not to say the champagne corks – or sparkling wine given the time of austerity – are likely to be popping in the offices of the other major parties. The Lib Dems, as Coalition partners, are unlikely to escape unscathed from any public disappointment at the extension of public spending cuts, particularly as first David Laws and then Danny Alexander have been complicit as Financial Secretaries to the Treasury. For Labour, any extension of austerity will pose difficult questions. How do they change or overturn much of the Coalition’s actions of the last five years to fit with their view of the world if there’s no money to spend? And, if they make efforts to generate growth through increased spending, will they face the accusation of living vicariously through the national credit card?
The story in the FT potentially opens a big can of worms for all three major parties, which will await the OBR’s figures with bated breath. They are figures that could change the game significantly in the run up to the General Election.