Osborne takes a leaf from Harper's playbook

The UK's Chancellor of the Exchequer, George Osborne, obviously likes giving fiscal updates. Counting the one he delivered on Wednesday, he's now tabled four of them in the past year. As ever, this latest update is a budget in all but name, and is designed to set the UK's public finances on course to reach a surplus by 2020.

Bringing the budget back to surplus has, of course, been Osborne's lodestar ever since the Tories got back into power in 2011. It's remarkable how little progress has been made so far, and the 2020 target date for balancing the books represents considerable slippage from the Tories' early goals -- if things had gone as Osborne initially expected, the deficit would have been eliminated by this year.

In part, this slippage reflects the fact that cutting spending has proved a lot more difficult than Osborne and his boss, David Cameron, imagined it would. Despite howls of protest from all quarters at the supposed severity of the Tories' spending reductions, program spending continued to expand in the early years of the Tories' first mandate -- when they were, it should be recalled, governing in coalition with the Liberal Democrats. As I commented more than once at the time, Osborne was achieving the worst possible outcome, taking political flak and possibly damaging confidence while doing very little to get the budget back in balance.

The return to surplus forecast in this year's update relies on three main elements, the details of which you can read in the linked article. First, projected GDP growth for the forecast period, including the current year, has been revised modestly but significantly higher, resulting in an improvement in the projected revenue stream.  Second, program spending outside the so-called "ring fenced" areas (including health care) will be reduced by an average of 0.8 percent per year in real terms during the forecast period. Third, persistently low interest rates will result in lower debt service charges than previously expected.

That reduction in spending may look modest, but if it actually happens (big IF), and if the economy grows as forecast (ditto), then something quite startling happens. By 2020, the ratio of public spending to GDP, currently around 45 percent, would fall by about 9 percentage points. This would bring it back to levels not seen since the 1930s, well before the Beveridge Report boosted education spending and the establishment of the NHS pushed public health spending sharply higher.

Given this outlook, it's fair to ask if the Tories' apparent deficit fetishism was in fact simply cover for an ideologically-driven plan to shrink the size of the state. There are some obvious parallels here with the fiscal record of the late and unlamented Harper government in Canada. Harper and his finance ministers presided over significant cuts in a wide variety of spending programs over a multi-year period, all the while trumpeting the need to balance the budget, yet only managed to squeeze out a tiny surplus in the last full year of their mandate by selling assets.

This article from Open Democracy suggests Osborne may be plotting to copy another element of the Harper playbook in time for the next election.  If indeed the deficit does shrink as the Chancellor hopes, then in the run-up to voting day he may well have the flexibility to offer the kind of targeted spending and tax moves that Harper's Tories were spraying around just before Canada's recent election. It didn't work in Canada, but given the disarray in the UK's opposition parties right now, who's to say it wouldn't work there?