Spurious George

The chancellor is poised to put forward a long-term plan for Britain—about the wrong thing

THE British government's great boast is its resolve. Fainter hearts might have trembled before the political law that you cannot cut your way to re-election. But the Conservative-Liberal Democrat coalition, forged in the dark days following the financial crisis, formed a plan for the economy and stood its ground. Its reward has been to see unemployment tumble and Britain grow faster than any other big rich country in 2014.

The shabby truth, however, is that the success of Mr Osborne stems from the goals he has abandoned, rather than the guns he has stuck to. And next week, unless his budget plans are more apt, Britain risks paying a heavy price.

The government has done sensible things with Mr Osborne as chancellor—not least cutting corporation tax, raising the income-tax threshold and pinching Mark Carney from Canada for the Bank of England. But it has been at its best when it has been at its least consistent, in three main areas.

The first is fiscal policy. Five years ago the Conservatives pledged to eliminate almost all of Britain's structural deficit—then estimated at 8.7% of GDP—by the end of their term. They now lead a coalition government that is only half way there. Borrowing this year will probably be about 5% of GDP or ￡90 billion ($135 billion), ￡55 billion more than first planned. After two years of weak growth, because of austerity and a European slump, the chancellor pushed back his deadline for closing the deficit. So much for what was then known as “Plan A”.

Red box, black box

That change was welcome and necessary. Sticking to the plan would have meant tax rises or bigger cuts to public spending, or a combination of the two. It would probably have pitched the economy back into recession, and might have wrecked public services. As it is, the state has coped with deep but steady cuts. Crime is down and the sky has not fallen on local government or the National Health Service.

A second change of course was equally welcome. After coming to power in 2010, the coalition first stuck to the previous Labour government's plans to slash capital budgets. Public investment—always the easiest bill to cut quickly—fell by 35% in two years. That was foolish. Spending on infrastructure is essential to long-term growth and is chronically low in Britain. Mr Osborne tempered the cuts in infrastructure spending starting in 2011. Again, his change of heart was good.

The biggest and best departure from the blueprint is also the most embarrassing. Before he became prime minister, David Cameron pledged to reduce annual net migration to the “tens of thousands”. The coalition government has never abandoned that goal. Yet at the last count net migration stood at a UKIP-maddening 298,000 and rising. Because they are young, healthy, hardworking and enterprising, immigrants have boosted growth and swelled the public purse. A big fall in net migration would have weighed on the economy: GDP has risen by 7.8% over this parliament; GDP per person is up by only 4.2%.

You might think that the government's vacillations are ancient history or that doing the right thing is more important than saying it. But plans focus the mind. And in the upcoming budget Mr Osborne risks focusing minds on the wrong issue.

Britain's biggest problem today is not the deficit but stagnant productivity growth that leaves output per hour 2% below its peak in 2008.The country's economic future depends far more on boosting how much Britons produce at work than how quickly the deficit is cut. Mr Osborne surely knows that and may secretly plan to shift priorities later. But he is making good policy less likely. U-turns are embarrassing, so plans tend to last for too long. By preparing for deficit-cutting and neglecting productivity, government departments are dissipating their efforts. Mr Osborne did well to change course before. The right thing today is to make a plan for productivity—and stick to it.