Sunday, October 25, 2009

Tories accidentally back bigger fiscal stimulus

This just in:

The [Conservative] party intends to capitalise on last week’s official figures that show the economy still mired in recession by attacking the government’s efforts to boost the economy. The Tories believe the figures… vindicate their stance.
They say the small print of official statistics last week shows the government is spending only half of its planned £20 billion fiscal stimulus. Half of the stimulus, which included last November’s temporary 2.5% reduction in Vat, was “a myth”, the Conservatives said. Their claim is based on analysis of last week’s public finances figures by the independent Institute for Fiscal Studies (IFS), which said the Treasury was undershooting its own spending projections by billions of pounds.
“Current central government spending on the delivery of public services has grown less quickly than forecast by the Treasury for the year,” said Gemma Tetlow, an IFS economist. “If this lower growth rate continues for the second half of the financial year, this element of spending will be some £10 billion lower than budget forecast.”

Let me see whether I’ve got this straight. The recession is turning out to be worse than expected. The fiscal stimulus, designed to ease the recession, is turning out to be smaller than expected. So yah boo sucks to Labour for not doing enough, and if only we’d listened to the Tories, who stood firmly against – oh.

Also, the IFS research was not “uncovered by the Conservatives”. It was published on the interwebs for all to see. And if you do go and take a look, you’ll find it brimming with caveats:

We should be cautious of inferring or extrapolating likely outcomes over the financial year as a whole from information on only the first half, particularly given that a number of factors are likely to affect the profile of receipts and spending differently in 2009–10 than in 2008–09.

Another thing to remember is that £10bn is no big deal as forecasting errors go.

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