Budget: Biggest Spending Cuts Still To Come

Few Budgets are more political than a pre-election one - but there is still a fair bit of economics underneath the surface.

So let's ignore the verbiage and have a look at the story of the Budget told through some of the charts in the documentation that have been released by the Treasury and Office for Budget Responsibility.

1. The road away from Wigan Pier

Perhaps the most eye-catching of all the charts in the Autumn Statement was one showing the Government was determined to get total spending down to the lowest level since the 1930s, prompting comparisons with George Orwell’s depression-era Road to Wigan Pier.

This politically awkward chart was deemed so damaging ahead of the election that the Chancellor has scaled it back.

So one of the biggest stories in this Budget is that the guilty chart has been effectively amended.

You’ll have to look very closely indeed to see the difference. Previously the Government was planning to reduce total spending to 35.2% of gross domestic product by 2020.

Now it will only hit 36% - which is what's on the blue line in this chart (which I've adapted from OBR data). Yes, it might seem like a small difference, but it is all-important as it is a touch higher than the lows in 1999/2000 and 1957/58.

2. Biggest spending cuts are still to come

How did the Chancellor achieve this? Not, it seems, by reducing austerity all that much. Instead, the cuts are planned to continue for the next few years, but there will be one almighty splurge in 2019/20. You can see the story in this chart:

As you can see, the biggest spending cuts are still yet to come in 2016/17 and 2017/18. So plenty more pain on the way.

3. Not a giveaway

Remarkably, this was not a giveaway Budget in the style of many pre-election Budgets. In fact, the Chancellor didn’t even commit to a temporary splurge of tax cuts to try to persuade voters the good times were on the way.

On the contrary, the measures in the Budget actually amount to a fiscal tightening (eg a tax rise/spending cut) in the first three years, followed by a small fiscal stimulus (eg a giveaway) in the following years. I was so struck by this I scrawled all over my copy of the Budget book.

4. Falling net debt

One of the Chancellor's promises when coming into office was to get the national debt falling by the end of the Parliament. He then said in subsequent Budgets that he was likely to miss this target but today, out of nowhere, he declared that he would meet it.

It's partly thanks to the early sell-off of bank shares and other assets, but he will still see it as a political victory. Whether it makes people feel any better off will remain to be seen.

5. But the economy is still damaged

One striking thing that hasn’t been much remarked on is that the economic growth numbers in the Budget were a little underwhelming. It seems the economy is still in recovery mode after the crisis, something underlined by this slightly depressing OBR chart:

6. House prices

Moreover the OBR also expects house price inflation to fall a touch faster than expected in the coming years. It's hardly a crash, but nor is it as healthy a forecast as was seen as recently as December.

7. Debt nation

Perhaps the most shocking of all the forecasts in the Autumn Statement was portrayed in this graph. It shows you household debt levels, which were expected to rise very sharply in the coming years.

The takeaway was that in order to sustain economic growth, the Government was relying on a sharp increase in borrowing - not by itself but by households.

8. Oil and the impossibility of forecasting

This final chart is noteworthy for two reasons. The first is that North Sea oil revenues are expected to collapse, effectively, in the coming years.

That is largely a result of the fall in oil prices around the world, but it is a reminder: Alex Salmond and the Scottish National Party were reliant on big bumper oil receipts to support their case for independence. Had they won the referendum there is no way they would have been able to meet their economic forecasts - not by a long shot.

Second, the chart is a useful reminder of just how difficult it is to forecast something as volatile as the oil price. You have been warned.