Autumn Statement: George Osborne needs to take a long view

To take George Osborne's Autumn Statement at face value it is both the best and worst of times: a time of plenty and a time of famine. He began by trumpeting the success of the Coalition in reviving the economy and pointed to growth figures that better most developed nations. He crowed about halving the deficit since entering office. But then he turned to the challenge facing the public finances and emphasised that the deficit is still too high and is being jeopardised by a slowing global economy.

The Chancellor cannot have it both ways. In fact, the situation today is very different from the one that confronted him five years ago. Then the deficit was double today's level, growth was conspicuously absent, and there were very real concerns about the possibility of soaring interest rates on Government debt. Today we are in a different position and the Government's focus needs to turn to the long-term, demographic challenges facing the public finances.

Despite suffering the longest recession in the nation's history, the Office for National Statistics this morning confirmed a seventh successive quarter of growth, which is the longest streak since 2008. As Osborne spoke the Office for Budget Responsibility (OBR) released its latest fiscal forecasts, which predict that debt will peak five percentage points below the 86 per cent of GDP expected in 2013. The recovery is assured: despite weak growth figures there is little risk of further recession. In sum, fiscal consolidation is no longer the most pressing challenge facing the government.

Despite the improvement in the public finances, the Coalition intends to cut 50 per cent more from day-to-day public spending over the next Parliament than they did in this Parliament. Between 2009-10 and 2019-20 public spending will have been reduced by an extraordinary 10 per cent of GDP. Moreover, the protection of the health and school budgets, along with guaranteed increases in pension spending, mean that other departments will suffer an average cut of 67 per cent over that period. These numbers have drastic implications but the government has yet to set out detailed spending plans for achieving their goal.

The silver lining to the cuts in expenditure is that many departments have had to carefully examine how they function, and that has led to some marked improvements in value-for-money. The Chancellor's speech rightly highlighted the improvements in public satisfaction with local services and the reductions in crime, even as police and local government budgets have been slashed by up to 60 per cent. However, it is in the big spending areas of pensions, health and schooling that this Government has been most reluctant to press for efficiency gains. These are also the areas that pose the greatest long-term risk to the public finances.

The OBR's long-term forecasts estimate that, at the current rate of growth, rising NHS expenditure will cause debt to exceed 200 per cent of GDP over the next 50 years. The triple-lock will cause spending on the state pension to increase by a third, to 8 per cent of GDP, even accounting for the increase in the pension age.

A truly long-term economic plan would gradually reduce debt over decades, while improving value-for-money in the areas where there is the greatest risk of unsustainable increases in expenditure. That would require the Government to take a view of the public finances that extends out 50 years, rather than the current five.

George Osborne has the opportunity to implement a framework that ensures just that when he introduces a new Charter for Budget Responsibility to Parliament next week. He could empower the OBR to take a longer view of the sustainability of the public finances when it assesses the Budget. By bringing the long view to the heart of fiscal planning he would go some way towards overcoming the myopia that has plagued his own fiscal plans. It would be a fitting legacy for a Chancellor who has staked his reputation on fiscal credibility.