Chancellor of the Exchequer George Osborne pledged to run a budget surplus by 2020 to help bring down U.K. government debt if his Conservative Party is re-elected in 2015.
He told the Conservatives’ annual conference today in Manchester, northern England, that the goal will require discipline over spending and details of the new fiscal mandate will be announced next year. Capital spending will grow in line with gross domestic product, he said.
“When we’ve dealt with Labour’s deficit, we will have a surplus in good times as insurance against difficult times ahead,” he said. “Provided the recovery is sustained our goal is to achieve that surplus in the next Parliament.” The government will “fix the roof while the sun is shining.”
With the economy set as the battleground for the next election, Osborne is seeking to contrast the Conservative-led government’s management of the public finances with that of its Labour predecessor. A YouGov Plc poll published yesterday gave Labour an 11 percentage-point lead over the Tories after leader Ed Miliband pledged last week to freeze energy prices until 2017. The pollster had the two parties tied on Sept. 18.
“It effectively boxes Labour in,” said Tim Bale, professor of politics at Queen Mary University in London. “If they sign up to it, they can’t announce spending plans without simultaneously announcing matching cuts. If Labour refuse to sign up, it allows Osborne to say they want to keep on running a deficit.”
Weaker-than-forecast tax receipts forced Osborne to abandon his original goal of finishing his deficit-reduction program by 2015. Instead, austerity is set to continue until 2018, with the Office for Budget Responsibility predicting there will still be a deficit at that time. The fiscal watchdog is due to update its forecasts later this year.
With the recovery only just starting to gather pace, Osborne’s promise is “wildly optimistic,” said Neville Hill, an economist at Credit Suisse Group AG in London and a former Treasury official.
“They should probably get on with reinstating plan A before they start with plan A*,” he said. “It will take them a while to get rid of the deficit. It’s talking tough without doing anything about it. It would require an enormous amount of fiscal tightening which politically will be very hard to implement.”
Based on OBR forecasts published in March, Britain will still be in deficit by about 43 billion pounds ($69 billion) in 2017-18, or 2.3 percent of GDP. The country has run surpluses in only seven of the past 50 years, and three of last 20. They were the years between 1998 and 2001 during the first term of Tony Blair’s Labour government.
Osborne has reduced the deficit from a post-World War II high of 11 percent of GDP when he took office in 2010 to 7.4 percent, or 116 billion pounds, in the year through March, according to the Office for National Statistics.
In the first five months of the current fiscal year, the deficit narrowed to 46.8 billion pounds from 50.5 billion pounds, putting Osborne on course to undershoot the 120 billion pound-shortfall forecast by the OBR in March. Net debt was 1.19 trillion pounds in August, or 74.6 percent of GDP. That’s up from 71.5 percent a year earlier.
“Only if we properly control public expenditure will we be able to keep lowering taxes,” Osborne said today.