Osborne’s budget needs to deliver in long run

A host of risks — including turbulence in financial markets, slower growth in economies like China, weak growth in other developed countries and prospects of Brexit — cast shadow on British economy, forcing it to take more austerity measures. With such measures in place, it is quite interesting to see where the additional cuts would be made.
Presenting the annual budget speech before the parliament, UK Chancellor of the Exchequer George Osborne said the government would seek additional spending cuts totalling £3.5 billion ($5.0 billion, 4.5 billion euros) by 2020, when it expects to reach a budget surplus despite higher borrowing.
Osborne forecast that the British economy was set to grow by 2.0 percent this year, down from a November estimate of 2.4 percent. Growth was expected to stand at 2.2 percent next year, down from 2.5 percent.
But Fiscal watchdog, the Office for Budget Responsibility (OBR) — which compiles official government forecasts — said the latest predictions were based on the assumption that Britain remained in the European Union. What if not?
Britain’s June 23 referendum on EU membership is in the mind of Osborne who backs the stay in the EU campaign. He repeated the government’s strong desire for the UK to stay within the 28-nation trading bloc. “Britain will be stronger, safer and better off inside a reformed European Union — and I believe we should not put at risk all the hard work the British people have done to make our economy strong again,” Osborne said.
To stimulate the growth, the government will meanwhile put more cash into education and infrastructure projects. They include major railway developments in northern England and in London, and also a package of extra funding for education, which could see students being made to learn maths until the age of 18, up from 16. Interestingly, Britain will impose a tax on excessive sugar levels in soft drinks starting in two years’ time to cut down on spiralling childhood obesity levels.
Yet the new cuts set to be introduced by Osborne came under criticism from economists for pegging his policies to a legally-binding fiscal target to balance the books, calling his economic credibility into question.
A shift from a budget deficit in 2018-2019 to a surplus in 2019-2020, as forecast by the OBR, would be equivalent to 1.5 percent of GDP. That would make it one of the biggest such moves since World War II, said IFS economist Gemma Tetlow.
Osborne rejected accusations that his figures did not reflect a true picture of Britain’s fiscal trajectory. “If you hold to the course, if you deliver those plans, if the economy grows as expected, then we will have a surplus towards the end of the Parliament.”
So far, the projections show the British economy is strong and can weather the storm. “The British economy is resilient because whatever the challenge, however strong the headwinds, we have held to the course we set out,” Osborne pointed out.
UK Chancellor of the Exchequer’s statement seems to take the bull by its horn. The budget takes into account the local, regional and international economic challenges that the UK would face. Osborne demonstrated he has a grip on Britain’s economic future.
He has voiced vociferously that Britain will be economically better within the EU. Forecasting the challenges and taking bold measures, he has shown that he doesn’t believe in a myopic approach. However, it has to be seen whether his austerity plans deliver or fizzle out in the long run!