George Osborne's surplus will need yet more cuts - The Guardian (blog)

It's not over. The job is only half done. There's hard graft ahead. Dealing with debt addiction will take time. That was the message from George Osborne as he offered voters what he called "a serious plan for a grown-up country".

The chancellor's speech to the Conservative party conference was both a statement of the obvious and a piece of political positioning. It has taken far, far longer than the Treasury expected for growth to return to the economy, but, fortunately for Osborne, voters still blame the last Labour government rather than the current administration for the delay. When the chancellor said "the battle to turn Britain around" was not over, the subtext was that voters should think twice before putting Ed Miliband and Ed Balls in charge.

In place of Labour's failure to "mend the roof while the sun was shining," the next Conservative government would start to pay down the national debt by running a budget surplus during the course of the next parliament.

This was making a virtue of necessity. The 2010 forecasts made when Osborne took over at the Treasury from Alistair Darling saw the economy growing at almost 3% in both 2012 and 2013, with deep cuts in the budget deficit as a result. The chancellor boasted on Monday that public borrowing had been cut by a third since the coalition came to power; what he did not say was that it is still expected to be £120bn this year – double what was envisaged in 2010.

Osborne has already abandoned his original aim of sorting out the public finances in one parliament, with two extra years of deficit reduction pencilled in during the first two years after the 2015 election. on Monday, the chancellor went further, announcing that a Conservative government would run a budget surplus in the next parliament.

This is some commitment. Capital spending on the UK's infrastructure will be £25bn a year on existing plans and will rise in line with economic growth during the next parliament. The Treasury will need to squeeze current spending if it is to achieve an overall surplus.

Is this possible? The ringfencing of spending on the NHS, schools and overseas development means that there have already been deep cuts in the budgets of other Whitehall departments. Researchers at the Institute for Fiscal Studies, Britain's leading thinktank on tax and spending matters, were already sceptical about whether spending on the police, the courts and other non-ringfenced activities could be cut much further even before Osborne's latest pledge.

That's not to say it is impossible for a surplus to be run in the next parliament. It will, however, require two things: reductions in welfare spending and a prolonged period of steady growth. The chancellor admitted that without the latter, his plan would be a dead duck.

Growth prospects look good in the short term. The economy grew by 0.7% in the second quarter of 2013 and the City is expecting a similar rate of expansion in the third quarter. Bringing forward phase two of Help to Buy, the government scheme to subsidise house buying, from early 2014 to next week will help to keep the property market humming.

Osborne staunchly defended Help to Buy, and it is backed by the CBI, which says it was vital in turning the economy around earlier this year. But by pushing up house prices it will result in higher mortgages and more private borrowing. The chancellor said victory would not be achieved until he had weaned Britain off its debt addiction. Don't hold your breath. As with the pledge to run a budget surplus, it may be some time in coming.