Gideon the Magnificent and the Disappearing Deficit Act

The Conservatives made a lot of promises about the economy to secure their victory. Will they be able to keep them now that the markets are in turmoil?

American investor Bernard Baruch once said that people should vote for the people who promise least because they’ll be the least disappointing.

That’s not how the British public decided last year.

George Osborne made the bold promise to make the budget deficit disappear by the end of 2019-2020. The same bold promise he made in 2010, but who remembers such things?

To set the bar even higher this time, Cameron and Osborne said they could do so without raising VAT or taxes on income and high-valued property.

The list goes on.

They promised to mark down corporation tax, leave national insurance untouched, and ‘triple lock’ pensions, meaning they’d be in step with wage growth.

More cuts then?

Likely, but where? The government insists it wants to spend 2% of GDP on defence and promised not to slash health, education or foreign aid budgets.

That’s a lot of promises.

Allow me to translate that for you: the Conservatives are going to eliminate the deficit with public spending already at a historic low and without increasing revenue in the easiest and most straightforward way.

Unless Osborne outs himself as a magician – Gideon the Magnificent – he’s not going to pull that off.

In all seriousness, no one really believed Osborne could cut his way to a positive figure without raising any revenue elsewhere, right?

When the coalition expired the easiest cuts had been made. And he wasn’t even halfway to his target.

In the last six decades the British government has only accomplished a budget surplus eight times. So it’s not like it’s an easy objective. Balancing the books is a challenge even without adding billions in tax cuts to the bill.

The plus doesn’t seem to match the minus in the chancellor’s calculations. Academics already warned the Treasury about this ahead of last year’s autumn statement.

And that was before this year’s market mayhem. Last week the Bank of England lowered its growth outlook. This week the Institute for Fiscal Studies (IFS) informed us the imaginary bar Osborne set has moved further into the clouds.

The IFS’s annual Green Budget states that if average earnings forecasts are off by 1% – and these forecasts have a habit of being too optimistic – Treasury will miss out on £5 billion in income tax and insurance revenues.

Stormy weather taking down the FTSE 100 could lead to £2 billion less in capital gains tax. Freezing fuel duty like Osborne’s done in the previous years would add a further £3 billion to the debit balance.

If Osborne is serious about keeping his budget deficit target, the IFS has an idea what needs to happen:

“It could require big tax rises or spending cuts with very little notice”

Okay, what else?

“The government might raise revenue through changes to the pensions tax regime.”

That’s just their guess. But no matter where the money is going to come from, you can start preparing for some broken promises. You’d almost think that’s what they’re for.

Unless Osborne really has some tricks up his sleeve.

With Cameron out of the picture after the present parliamentary term, Osborne is one of the bookies’ favourites to succeed him.

What stands in the way? The fact that he’s done what practically every politician avoids at all costs: making an unambiguous promise to the people they can judge him against.

Osborne’s credibility has been defined as a simple yes or no question: will he eliminate the deficit by the end of this administration?

If he really wants to be the next Tory leader, he’ll do everything he can to reach that target.

For his next trick – The Disappearing Deficit – Gideon the Magnificent is going to need a little help from the public.

Any volunteers?

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