Has George Osborne gone soft on fixing the public finances?

George Osborne has previously been fixated on reducing the UK's debt burden. Credit: Andrew Matthews / PA Wire/PA Images

The big question about George Osborne this morning is whether he is Hercules or Don Quixote.

Is he one of the most imaginative and determined chancellors or finance ministers operating in the world today, proving that even when faced with formidable challenges it is possible to take bold long-term actions to improve long-term economic performance?

Or is he engaged in chronic displacement activity, tinkering around with populist measures while failing to do the big thing he promised, namely fixing the fiscal roof, mending the public finances in a robust way?

Now the big things that have gone wrong for him are - arguably - out of his control: the Office for Budget Responsibility expects growth in productivity or workers' output to be slower than it hoped; and the official statisticians have admitted that they exaggerated the size of the economy.

By 2020/21 the Treasury will have received £52.8bn less in tax revenues. Credit: Dominic Lipinski / PA Wire/PA Images

The combination of these two bits of bad news are that the overall money value of our economy is expected to expand more slowly than the Chancellor assumed.

That means by 2020-21 George Osborne and the Treasury will have received £52.8bn less in tax revenues than they were banking on.

And that is the biggest reason why the OBR is forecasting an underlying increase in government borrowing over the coming five years of £56.3bn in aggregate.

Now that £56bn is the increase without taking into account some tax rises and public spending cuts announced in the budget.

The effect of those budget measures means that public sector net debt to the end of the 2021 will increase not by £56.3bn but by a bit less than half that, £25bn.

But there will be some who argue that the Chancellor has not taken nearly enough evasive action.

They would say he should be more worried that the economy is smaller than we thought - because that shrinkage means the burden of debt, the ratio of the money value of the public-sector's debt to the money value of what we produce or GDP, has risen sharply.

The OBR is forecasting an underlying increase in government borrowing. Credit: Joe Giddens / PA Wire/PA Images

The way to think of this is that if you suffer a pay cut, obviously the amount of debt you can afford to service falls - and a rational person in those circumstances borrows less.

To be clear, household finances are a lousy model for government finances: but the basic point holds, that if as a nation we are generating less income, then the money value of the debt the government can comfortably service also falls.

Thus in November, the OBR expected the ratio of debt to GDP would be 74.3% by the time of the next election in 2020. Yesterday it said it now expects that ratio to be considerably higher, 77.2%.

To be clear. a debt burden of 77.2% in four years would still be lower than the 83.7% debt burden today. But the improvement is considerably slower than the Chancellor would have liked - and leaves the debt burden at almost twice the level of before the 2008 Crash.

There are economists of course who say that the Chancellor has been stupidly wrong to be so fixated on the debt burden, especially at a time of record low interest rates.

But he has been fixated on it. So this slower pace to debt reduction can be seen as a failure for him.

There is a big related political risk for him in not fixing this roof as fast as he promised. Which is that it also puts in jeopardy the policy most associated with him, namely to generate a surplus by the end of the parliament.

Mr Osborne seems to have shifted all the tightening and cuts to the end of this parliament. Credit: PA Wire/PA Images

The striking point is that the impact of his budget measures is to pump money into the economy, more than £12bn, until the end of 2019.

Now left wing Keynesian economists would presumably applaud him for that - especially at a time when, as Osborne says, the economic storm clouds from a slowdown in China and continued EU frailties are rolling in.

If the government taxes less than it said it would, that can encourage individuals and businesses to spend and invest a bit more, and offset other depressing forces.

But Osborne doesn't normally brand himself as that species of Keynesian fiscal activist: quite the reverse.

So some will see political opportunism and wishful thinking in his decision to shift all the tightening and cuts right to the end of this parliament.

And it's partly because you can't be certain of the impact of tightening that's so distant that both the OBR and the independent Institute for Fiscal Studies think there is only a 50:50 chance (roughly) that he'll actually deliver the cherished surplus in 2019-20 that he absolutely promised.

That said, many will admire the way this renaissance man of a Chancellor has announced a revolution in saving through the creation of Lifetime ISAs, a plan to improve standards in schools by increasing their teaching hours and forcing them to become independent of local authorities, and a nannying new tax to dissuade us and our children from drinking too many sugary drinks.

But on his own benches they may also wonder whether he's gone too soft on what everyone thought was his core conviction - namely getting the debt down.