How Osborne tried to mislead us today about boosting capital spending

2:22 pm - June 26th 2013

by Duncan Weldon    

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George Osborne just made a great deal of fuss about his plans to increase capital spending from 2015/16. The immediate question is – how big is this boost?

The short answer is – there isn’t really one.

Osborne spoke repeatedly about investing £50bn a year and given current public sector net investment is around £25bn a year – these seems like an awful lot, a doubling of investment spend.

However, it appears Osborne was talking about increasing gross rather than net investment spending.

To clarify: the difference is that Depreciation is running at approximately 25bn a year. Osborne just started talking about a different measure, misleadingly.

Gross public sector net investment is around £47bn a year and was previously expected to be £50.4bn in 2015/16 according to the OBR (table 4.18).

In other words there doesn’t actually appear to be an increase in capital spending.

How very misleading.

This isn’t a real increase and it is not even scheduled to start for two years, the economy needs a boost now – not smoke and mirrors about the future.

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About the author
Duncan is a regular contributor. He has worked as an economist at the Bank of England, in fund management and at the Labour Party. He is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.
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Story Filed Under: Blog ,Economy

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Reader comments

1. Shinsei1967

Out of interest what is the difference between gross and net capital spending ?

This is just bizarre, isn’t it? You would have thought that, from Osborne’s perspective, higher borrowing for capital investment had an economic upside (supporting growth) but a political downside (requiring him to backpedal from the position that you can’t solve anything by ‘borrowing more’). Yet here he is trying to score political points by *pretending* to spend more borrowed money on capital investment – without actually doing that extra borrowing and so seeing the economic benefit.

Still, mustn’t grumble. By reassuring everyone that spending more borrowed money on capital investment is a good thing to do, Osborne is making it much easier for Labour to make that case (and much harder for the Tories to attack them over their plans in this area).

If the tide has turned on capital spending and the parties are now going to be competing to promise more rather than less, this is a very good day for Labour.

Recap on government borrowing, from BBC website 21 June 2013

Government borrowing rose slightly in 2012-13 compared with the previous year, figures from the Office for National Statistics show.

Underlying public sector borrowing was £118.8bn, up from £118.5bn in 2011-12.

The rise comes as a result of the ONS revising down its 2011-12 borrowing figure by £2.4bn to £118.5bn.
The figures could make uncomfortable reading for Chancellor George Osborne, who had previously said annual borrowing was coming down. . .

public sector net – a measure of the total amount the country owes – rose to £1.19 trillion, up from £1.1tn a year ago.

The underlying picture has not changed.
Government borrowing was broadly flat over the last two financial years and is likely to be about the same this year. It’s good news for the chancellor that the borrowing number for 2011/12 has been revised down by nearly £2.5bn. What is now politically inconvenient for him is that this leaves the figure for 2012/13 slightly higher.

He has set great store by saying that there has been year-on-year deficit reduction since the coalition took office in 2010. The way the figures look now, that is not the case. Of course 2012/13 could well be revised lower in future as new data comes in.

Economically the story remains the same – the government is finding deficit reduction a challenging task. And right how it is not happening.
This means total debt has now risen to 75.2% of gross domestic product (GDP), up from 71.1% of GDP at the end of May 2012.

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