With the Chancellor’s autumn statement due next week, advance notice has been given of yet another political trick designed to put Labour on the spot. Osborne is proposing to introduce a law which will make it an obligation of the next government to end the ‘structural deficit’ by 2017-18. He will challenge Labour to commit to this ‘prudent’ policy or else denounce them for not being serious about “tackling the deficit”.
However, the proposal has not been well received in quarters where the Chancellor’s ‘austerity’ programme has been supported. The Financial Times has dismissed his new law as “pointless machismo”. The FT applauded his ‘flexibility’ when there was a downturn in the economy in 2012. They said he “sensibly refused to impose further significant cuts and pushed out the date for achieving fiscal balance”. However, they denounce him now for rejecting this former ‘pragmatism’ and having spent the last year “inventing unnecessary limits in their room for manoeuvre.” This included a refusal to consider raising taxes and promising a middle income tax cut of £7 billion.
The government’s pledge to create an absolute surplus, bemoans the FT, means adding tens of billions of extra cuts.
“Taken together such commitments would turn a difficult fiscal situation into an impossible one.”
That’s because in the next Parliament government departmental spending limits will be “ at historically low levels”. So “cuts on the same scale would cause lasting damage”.
Strong stuff from the voice of ‘free market’ capitalism in Britain.
The FT points to the similarity of Osborne’s latest wheeze to that of Gordon Brown when he introduced the Fiscal Responsibility Act in 2010, requiring the next government to halve the rate of borrowing in 4 years. Osborne simply repealed it, denouncing it as “vacuous and irrelevant”. If he had not done so, says the FT, he would have had to introduce steeper cuts last year! Osborne’s pledge of “a fixed target come what may is a doubtful means of achieving credibility when it risks causing unacceptable damage to public services”.
The Economist, from a slightly different angle, (it wants cuts to state pension to help tackle the deficit) nonetheless accuses Cameron and the man in No 11 of “fiddling the figures by comparing different measures of spending and inexplicably excluding cuts at either end of the next Parliament”. Such acts “would needlessly put the recovery at risk when global growth is slowing and interest rates are pinned to zero, and would further damage departments that have already suffered damage.”
What a revelation. The Economist and the FT are concerned about the damage done by Osborne to public services, and potential future damage. Indeed the Economist suggests that the scale of cuts that Osborne envisages would add up to “massacring services or welfare”.
To save themselves the Tories are prepared to punish the population on the altar of their ‘reputation’ and their desperate quest to stay in Downing Street. How Labour responds to Osborne’s latest trick is not clear as yet. They were stupid enough to commit to Tory spending limits in the first two years of the next Parliament and to balancing the current account within five years. Yet if even the FT and the Economist can recognise the damaging economic consequences of Osborne’ s proposal is it beyond the wit of Labour to oppose it? Can even Ed Balls be that stupid? Were Labour to agree to ‘match’ Osborne that would mean an extra £17 billion additional cuts in the two years after next on top of the £8.5 billion ‘consolidation’ in 2015-16.
The crash was the product not of New Labour’s profligacy in public spending but the collapse of revenue resulting from the recession combined with the consequences of their “light touch regulation”. Osborne’s ‘medicine’ is a prescription for maintaining low revenues. The OBR forecast predicts that income tax revenue will be £17 billion lower in 2014-15 than was predicted in June 2010. In just the last two years current receipts were over £70 billion less than predicted in the government’s first budget. The reasons for this are well known: the government’s squeeze on earnings and the proliferation of low paid and insecure jobs that have replaced well paid and secure ones, as well as the tax avoidance and evasion by big business. The austerity programme has been a drag on productive and socially useful economic activity.
The FT recently suggested that the level of cuts which would result from Osborne’s policy may be “beyond what the British people can bear”. Its economic fairytale is unravelling. Austerity has failed. The current account deficit is rising again, with borrowing already reaching £64.1 billion in the first seven months of this financial year. It was predicted to be £17 billion in the June 2010 budget and zero in the following year. The latest dubious prediction of the OBR for 2015-16 is £68.7 billion instead of zero!
Public sector net debt, “the accumulated level of government borrowing”, has risen by over £100 billion in the last year. Osborne has succeeded in adding nearly £500 billion to the national debt since he got hold of the reins of government economic policy. The OBR is predicting that Public Sector Net Debt will break through the £1.6 trillion mark in 2016/17. This what Cameron has described as “paying down the debt”!
Martin Wicks
November 29th 2014
Martin Wicks 