‘Tis the season to be jolly, and George Osborne is likely to receive some unusual good news which should promote Christmas goodwill in the Treasury. For the first time since it was established the Office for Budget Responsibility is expected to make upward revisions to its fiscal forecast on the 5th December, as the Chancellor presents his Autumn statement to parliament.
This hasn’t always been the case. On the whole the UK’s growth forecasts have been downgraded since 2010, casting negative judgement on the design of the Chancellor’s austerity programme as well as – unfairly – the OBR’s use as a forecaster.
With a more positive outlook for growth the Chancellor could find himself with a bit more room for manoeuvre at the Autumn statement, if higher revenues feed into lower borrowing forecasts. What he should do with the revenue is for once a meaningful question.
A number of candidates present themselves. First, the Chancellor could listen to the right-wing of his party and offer new tax cuts, if not now then closer to the election.
Equally, he could redouble his focus on the public finances. The deficit remains high by historic standards and high relative to what, in 2010, Osborne was hoping to achieve by this stage in the parliament.
Alternatively, Osborne could choose to take the pressure off planned cuts to revenue spending, both social security and especially departmental spending. Assuming no new tax rises or reductions in social security are announced, in the next parliament a number of public services face eye-watering cuts on top of those received since 2010.
There is another alternative however. The final report of the Fabian Society’s Commission on Future Spending Choices, 2030 Vision, makes the case for increased investment spending as a matter of urgent priority.
During the course of the government’s fiscal consolidation there has been a significant shift away from investment in the future and towards spending on the present, particularly healthcare and social security. Whereas by 2017-18 the level of public spending is expected to be back at pre-crisis levels, gross capital investment below the average for the 1990s and 2000s.
Trends of this kind are not without huge long term consequences for the economy, particularly seen against the drought in private investment. Investment in its widest sense – on long-term infrastructure, children and young people, skills, innovation and jobs – which will lay the foundations of national success in the future is now an urgent priority. Putting debt on a falling trajectory matters, but so too does long-term sustainable growth, particularly where it will help crowd-in private sources of capital.
This matters in the short-term, but it is also significant for setting the long term direction public spending which has been set on the wrong path, away from investment in the future.