UK: Deloitte Monday Briefing: Mr Osborne’s Twenty-Year Vision

Last Updated: 26 March 2014
Article by Ian Stewart

Most Read Contributor in UK, August 2017

A personal take on economics from Ian Stewart, Deloitte's Chief Economist in the UK.

  • Most of the media attention around UK Budgets focuses on the winners and losers. For the Chancellor it was a Budget for makers, doers and savers. The FT's Martin Wolf described it in less complementary terms, as a Budget for "the prosperous and the elderly".
  • Stepping away from the personal finance aspects, what does the Budget tell us about the Chancellor's long-term vision for taxation, public debt and public spending?
  • Last week, Mr Osborne announced the biggest upgrades to UK GDP growth forecasts between budgets in at least 30 years. But while the economy may be on the mend, the government is still borrowing over £100 billion a year, equivalent to almost 7% of GDP.
  • Mr Osborne's message was that public sector austerity has much further to run. The UK is less than half way through a nine-year programme to repair the government's finances. About half of all the cuts in public spending needed to eliminate the deficit will take place in the next Parliament.
  • While the public sector squeeze continues, the private sector seems to be on the verge of a period of sustained growth.
  • The independent forecasting body, the Office for Budget Responsibility (OBR), forecasts that business investment will rise by almost 50% over the next five years. It also foresees a recovery in consumer spending power. By the time of next May's General Election the OBR expects earnings, after allowing for inflation, to be growing at the fastest rate in seven years.
  • The Budget offers intriguing hints about the Conservatives' long-term ambitions. The Budget Red Book makes the case for a 20-year programme to reduce government debt to meet the costs of an ageing population and as an insurance against future uncertainty.
  • A chart in the Red Book hints at the scale of Mr Osborne's ambition. It shows the stock of net public sector debt to GDP shrinking from almost 80% today to 30% by the mid-2030s – close to the lowest level in 300 years.
  • To achieve this feat of debt reduction would require a 20-year period of fiscal conservatism unparalleled in recent history. In 35 of the last 40 years the UK government has spent more than it has raised and has borrowed to fund the difference. To shrink the ratio of debt to GDP to 30% would require budget surpluses to become the norm.
  • To achieve this would require tremendous political will backed by sustained economic growth.
  • One small part of the proposed solution, announced last week, was the introduction of a £119 billion cap on welfare benefit spending. The cap will rise in line with inflation, but growth beyond this would either require the authorisation of Parliament or action to cut the benefits bill.
  • The introduction of the benefit ceiling seems to be at least as much about politics as economics. Opinion polls show that the British public are far more likely to see benefits as being too high and discouraging work than in the early 1990s. The cap also puts the Labour Party on the spot on its attitude to public expenditure.
  • Time will tell whether this Budget's forecasts will prove more reliable than those in its recent predecessors'.
  • But what did emerge last week was a Conservative vision of a smaller, less-indebted state. Clear blue water seems to be emerging between the political parties ahead of next May's General Election.


UK's FTSE 100 ended the week up 0.4%.

Here are some recent news stories that caught our eye as reflecting key economic themes:


  • New York overtook London as the world's leading financial centre according to the Global Financial Centres Index, with the City's position damaged by banking and market scandals and uncertainty over EU membership
  • Ratings agency Fitch raised its outlook for the US economy from negative to stable, in part because of the way the US federal debt limit was suspended in February
  • The UK recorded the strongest export growth in the European Union last year according to official figures, with export growth of 11% over the year
  • Hitachi, the Japanese electronics conglomerate, announced that it is moving the headquarters of its train manufacturing business to Britain
  • The Financial Times reports that sales of 'second-lien corporate loans' – a type of debt structure that was popular in the build-up to the financial crisis – have risen sharply so far this year
  • Chinese ecommerce group Alibaba invested $215m into chat app Tango, the group's largest known investment into a US start-up
  • Asos shares fell 8% in a day after the online fashion retailer announced plans to increase spending on warehouses to meet growing demand at the expense of short term profits
  • The number of Americans who pay for TV through cable, satellite or fiber services fell by more than a quarter of a million in 2013, the first full-year decline, according to research firm SNL Kagan
  • The FT reports that bonds from peripheral financial institutions, as a percentage of eurozone issuance, have increased by 2 percentage points year on year to 26.7%
  • Low cost airline Ryanair has been assigned a low investment grade rating by Standard & Poor's, partly due to its poor reputation for customer service
  • Worldwide mobile ad spending more than doubled last year to nearly $18bn and is set to rise 75 per cent this year to $31.45bn, according to new figures from eMarketer
  • Hungary successfully issued $3bn worth of bonds, with receding fears over the fallout from Russia's incursion into Ukraine buoying developing market bond markets
  • Greek bond yields fell to near 4-year lows after the government reached an agreement with its international troika of lenders paving the way for the next tranche of bailout money
  • The Turkish prime minister Recep Tayyip Erdogan blocked access to social media site Twitter, which has been widely used to spread corruption allegations against his government
  • China announced plans to move parts of its government bureaucracy to Baoding, a city 150km from Beijing, causing shares in companies linked to the struggling metropolis to rise
  • A Chinese businessman has reportedly paid $2m for the world's most expensive dog, a 1-year old Tibetan mastiff which was advertised by the breeder as having "lion's blood" – mastiff mistake?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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