I’ve failed: Osborne admits debt won’t stop rising by election
Britain's national debt will continue rising when the coalition's five years in power comes to a close, George Osborne has admitted in his autumn statement.
Updating MPs on the state of the economy, the chancellor accepted for the first time that the UK's debt would continue rising until 2016/17 – and the coalition's austerity drive will now extend into the next parliament.
Britain's net debt will reach a peak of 79.9% in 2015/16 before dropping back to 79.2% in the following financial year. It currently stands at 74.7%.
"In short, the tougher economic conditions mean that while our deficit is forecast to go on falling, instead of taking three years to get our debt falling, it's going to take four," Osborne told MPs.
"Confronted with this news, some say we should abandon our deficit plan, and try to borrow more. They think by borrowing more, they can borrow less.
"That would risk higher interest rates, more debt interest payments and a complete loss of Britain’s fiscal credibility. We are not taking that road to ruin."
Osborne cited the independent Office for Budget Responsibility's (OBR) report blaming the failure on the performance of Britain's economy, which shadow chancellor Ed Balls suggested was directly linked to the coalition's austerity drive.
The OBR said over-optimism regarding net trade, caused by the eurozone crisis and broader problems in the global economy, was the biggest limit on Britain's GDP growth, which has now been downgraded across the board.
In March the OBR predicted the British economy would achieve growth of 0.8% in 2012. That has been revised downwards to -0.1%.
The economy is now forecast to grow by 1.2% in 2013, two per cent in 2014 and 2.3% by 2015.
"The message from today's autumn statement is that we are making progress," Osborne told MPs.
"It's a hard road, but we're getting there. Britain is on the right track – and turning back now would be a disaster."
Labour accused the government of failing across the board. Balls told Osborne across the despatch box that, after today's statement, "people can see the true scale of the government's economic failure".
Osborne had committed to balancing the books by 2015, but this will now not be achieved until 2017/18. Government borrowing is now set to exceed its previous planned levels by £212 billion, once a Bank of England asset purchase facility transfer is not taken into account.
Labour said the borrowing forecast for this year was only set to fall because it included the 4G mobile spectrum auction, which is expected to bring in £3.5 billion. Total cash borrowing for 2012/13 is now expected to reach £108 billion, before falling to £99 billion in 2013/14.
Analysts focused their attention on the OBR's decision to blame the recent weakness on cyclical rather than structural factors. Andrew Goodwin, senior economic adviser to the Ernst and Young Item Club, said the independent watchdog had reached a more upbeat assessment on public finances than many had expected and that these forecasts need further scrutiny.
"The decision to push the target date for the supplementary target back by a year looks sensible," Goodwin commented.
"However, the chancellor will be crossing his fingers that this set of OBR forecasts proves to be accurate, as he has little leeway on the new forecasts and there is a risk that he may have to revisit the supplementary target."
The financial markets remained broadly unaffected by today's news. Nick Beecroft, chairman of Saxo Capital Markets, said the statement was "very boring and predictable" and that sterling, gilts and stocks would be "virtually unmoved" as a result.