Today the new chancellor, Jeremy Hunt, will present a set of spending cuts that are widely expected to be a return to the grim days of George Osborne’s reign. “Eye-watering” spending cuts and tax rises have been heavily trailed in the media. The chancellor, his government and their media outriders have justified this renewed attack on public services and economic prosperity by pointing at a huge and terrifying new celestial body: the “fiscal black hole” – which is alleged to have emerged in the public finances in the last month, and perhaps be as big as £60bn. The government has been left with no choice, in the words of the Institute for Fiscal Studies’ director, Paul Johnson, to inflict “big, painful spending cuts” or tax rises.
Yet this screeching U-turn in government policy – contradicting promises to end austerity and its commitments in the 2019 manifesto – is being driven by nothing more than an insubstantial statistical artefact. The “fiscal black hole” is not a hard economic fact. It’s the result of uncertain forecasts and the government’s own target for the level of debt in five years’ time. This isn’t the same as looking at (for instance) real wages – currently falling rapidly – or rising unemployment today. It would be a profound error to use this ghostly “fiscal hole” as an excuse to drag the country back into the economic doom-loop of austerity.
