Osborne has hurled himself down the slippery slope, writes Tim Harford
‘I’m going to level with people about the difficult economic circumstances we still face and the hard decisions required to deal with them.’
George Osborne, chancellor of the exchequer, Budget speech, March 20
George Osborne was very good at levelling with people about how bad things are in the eurozone and how badly Labour managed the economy. He wasn’t quite so keen to draw attention to the plank in his own eye.
Nobody can be surprised that Mr Osborne spun things to his own advantage. But are you actually accusing him of statistical tomfoolery?
Of course I am. I’m ever more struck by the bizarre symmetry between Gordon Brown and Mr Osborne: both enormously pleased with themselves; both ideologically pre-committed to a particular course of action, regardless of the evidence; and both absolutely addicted to statistical fiddles.
But Mr Osborne established the independent Office for Budget Responsibility. You have to give him credit for that.
But he is in danger of making the OBR look ridiculous. The OBR is indeed independent and appears to be perfectly competent too, but it is obliged to respect statistical conventions. The chancellor has exploited those conventions without shame.
It is very important to Mr Osborne to be able to claim that the deficit is falling by some tiny amount – and equally important to his opposite number, Ed Balls, to be able to claim that the deficit is rising by some tiny amount. Just for the record, these are the only two men on the entire planet who care. Nobody else gives a flying fiscal target about it. But because these two overgrown school bullies care, Mr Osborne must manufacture a falling deficit, no matter what. He has done so through transparently shabby means. The most shamefaced is that he has informed the OBR that he will not be mailing his cheque to the World Bank until the next tax year, which begins in a fortnight.
Why does that help?
In practical terms it makes no difference to anything, except perhaps to mildly embarrass us in Washington. Nothing about the UK’s fiscal position is changed if Mr Osborne accidentally leaves that stamped addressed cheque to the World Bank in the glove compartment for a fortnight. But the OBR is obliged to recognise the spending as taking place next year. Mr Osborne could even change his mind about delaying the payment to the World Bank, now that the OBR estimates have been published – although even he might find that embarrassing.
What other tricks has he used?
He has moved cash from the Bank of England to the Treasury. The Office for National Statistics has decided that the appropriate way to account for this is to reduce the deficit. Any sane observer would conclude that the underlying economic reality has not changed.
At least he hasn’t used the off-balance sheet tricks so beloved of Mr Balls and Mr Brown.
Mr Brown was a master at this. He launched his unsuccessful election campaign in 2010 in a brand new hospital in Birmingham that was paid for using the private finance initiative – or to be more precise, which we are therefore all still paying for and will be for many years. But Mr Osborne’s big flourish this week was an attempt to pump air into the UK’s slowly deflating housing bubble by borrowing extra money and lending it on to homebuyers. He said proudly, “because it’s a financial transaction, with the taxpayer making an investment and getting a return, it won’t hit our deficit”.
But he’s still borrowing extra money – isn’t he?
Of course he is. But it’s off the balance sheet. It’s true that Mr Osborne is borrowing to invest in equity in British housing and so it’s possible that he will make a profit on the deal in the long run. But Mr Osborne could equally, and more wisely, borrow to invest in much-needed infrastructure. That could also pay off in the long run – but the accounting is less convenient.
This is ridiculous. Isn’t somebody supposed to be stopping him getting away with this kind of thing?
My colleague Chris Giles fears the ONS has been losing its independence.* But I suspect the truth is that if politicians decide to twist the statistics, they will succeed in doing so. And it will always be a pyrrhic victory. Whether or not you back Mr Osborne’s policies, nobody takes his statistical spin seriously any more. Mr Balls no doubt understands how that feels.
Also published at ft.com.
EDIT: Because of an editing error, the starred sentence above was originally published reading “The ONS has been losing its independence.” I respect Chris’s views but they are Chris’s views and not mine.