Steady, Boys, Steady

Brace up men

The spending battle is getting underway. The general public may not yet be up in arms, but the BBC, the Grun, and the unions are already hard at it.

This morning's FT leads on a story that the Office for Budget Responsibility "shrank job loss figure in run up to Emergency Budget".

The thrust is that poor old Budd got pressured by George to fiddle his forecast of public sector job losses from the budget. And while he spared George's blushes, he has totally undermined the independence and credibility of the OBR and has had to resign. Kind of idea.

Needless to say, when you probe into the details, you find a more complex tale.

According to the Treasury, the OBR made "methodological changes" in the run-up to the budget which had the effect of cutting its forecast of public sector job losses. Methodological changes? What seems to have happened is that the OBR factored in George's much tighter restrictions on public sector pay and pensions. So with lower costs per employee, for any given squeeze on the overall pay bill, job losses will be smaller. Surely everybody understands there's a trade-off between costs and employment. QED.

But if that's the case, why not just say so? No conspiracy, no stitch up, just the simple facts of life.

Well, because right now, publishing the key underlying assumptions on pay and pensions would be highly inflammatory. Yes, George has announced his 2 year pay freeze, but he has not yet announced his assumed big increases in public employees' pension contributions. John Hutton hasn't yet reported on the pensions problem, and the unions are in a state of high excitement as it is, without provoking them further.

Tricky.

Except of course, battle will have to be joined sooner or later. And when it comes to public spending control, sooner is always better than later.

Which is precisely why Gove was right to crack on with the abolition of Labour's madcap £50bn Building Schools for the Future (BSF) programme (see this blog). It had to be stopped soonest.

Obviously the BBC has been having a field day over the embarrassing admin cock-ups in the Department for Education's project list. But, that's Whitehall, and this is the chaos of war. Gove should not allow himself to be sidetracked from his key objective. He must grit his teeth, absorb the incoming fire, and think of England (oh yes, and certainly sack whoever was responsible for the cock-ups).

The other front that's been opened this morning is over the IMF's latest economic forecasts. Steph leads the charge:

"In the past three months the Fund's economists think our growth prospects have got notably worse, even though their forecast for the global recovery has been revised up.

Back in April, the Fund was expecting the UK economy to grow by 2.5% in 2011. In today's update that prediction has fallen to 2.1%. The forecast for 2010 has been nudged down as well - from 1.3% to 1.2%. This is at a time when the global growth prediction for 2010 has been revised up by 0.4 percentage points, to 4.6%."

Now given the upheavals globally since April, and given that the IMF expects global growth to weaken in the second half of this year, you might think a reduction from 2.5% growth to 2.1% isn't much - especially when you consider the IMF still expects us to grow fastest than Europe this year and next (and be third fastest in the G7 in 2011).

The IMF's forecast update is a summary only and it doesn't explain why they've shaded down our growth forecast. But of course a minor point like that doesn't stop Steph telling us it's all down to George's cuts:

"The Fund doesn't spell out why it is now more gloomy about the UK, but I am assured that last months' Budget is the reason."

Hmmm. Assured, huh? (See here for a much more balanced assessment of our economic position from - surprisingly - veteran Grun/Indie economics man Hamish McRae).

From here on, the gunfire is going to get a lot fiercer. Steadiness and hearts of oak will be essential. Like the man said:

"Come, cheer up, my lads, 'tis to glory we steer,

To add something more to this wonderful year;"

Mind you, that was written by an actor (pic), rather than someone who actually had to do the steering.

PS Talking of the Department for Education, what goes around sure does come around. Tyler's first civil service post was at the old DES - the Department of Education and Science. Since then it's been through countless name changes, culminating in the baffling Ballsian DCSF.

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