Budget 2013: George Osborne is failing on his own terms ~ James Meadway,
Senior Economist, NEF (THE NEW ECONOMICS FOUNDATION).
Albert Einstein had a working definition of madness: doing the same thing twice, and expecting a different result the second time. I’m not sure where that leaves George Osborne, now into his fourth cuts Budget. There is something almost admirable about his dogged persistence of austerity against the siren calls of basic economic theory, assortedNobel Prizewinners, the IMF and simple brute reality to change course. But Osborne follows his own, increasingly lonely, path.
I say almost admirable. Of course there is nothing to admire in the reports of the former soldier and his wife driven to suicide after their benefits were cut, or the child starved to death in Westminster, or the 32 sick and disabled people dying every week after failing new, stringent disability tests that found them “fit to work”.
There is nothing to admire in seeing most people’s real living standards slide as the recession grinds onwards. Real average incomes have fallen some 4.5% since the crash and are forecast to fall well into the future.
There is nothing to admire, once again, in seeing a Budget that hits the poorest hardest, even according to the Treasury’s own figures. Everyone loses something under Osborne: but the poorest 40% lose more than the middle 40% (Chart 2.C). The poorest fifth of the population lose more than the average.
Osborne promised us, in his emergency Budget of June 2010, that he would deliver growth, cut the deficit, and reduce the national debt. Austerity would deliver “fiscal credibility”, attracting investment and driving the recovery. His pet forecasters, the Office for Budget Responsibility – now showing at least some signs of straining on the leash – predicted 2.8% growth for 2013 as the private sector recovered. Real incomes, they predicted, would be rising by 3.8% this year (Table 3.1). Business investment would be booming by nearly 11%.
The reality is, by now, wearily familiar. The private sector rebound simply has not happened. Business investment is down £49bn from its peak. That is feeding into a collapse in productivity, now down 12% on its pre-crisis trend. A feeble private sector has fed into falling real wages, its weakness – disastrously – reinforced by sharp cuts to public expenditure. Cuts to public spending, in a weak economy, drag the economy down further: as government spends less, the rest of us earn less, and as we earn less, we spend less: a vicious circle of decline.
Osborne, apparently realising this, has attempted to correct his folly in pushing through major cuts to capital expenditure. £2.5bn extra will now be found for capital project by slicing departmental spending still further. But while the cuts to individual departments will be severe, the impact on the whole economy will be miniscule – on the Treasury’s own impact estimates, it will add approximately 0.06% to GDP over each year. This, to use the technical term, is knack all.
Are there any positives in this? An increase in the zero income tax personal allowance to £10,000 will be welcomed by many, but of course will be overwhelmed for the poorest by the earlier VAT hike. Likewise on National Insurance Contributions. Osborne gives a little, but takes far more away.
Growth down. National debt up. Government deficit going nowhere. Industrial production down but financial services growing. Osborne has failed on every measure he set himself. Like the Bourbons, he has learned nothing and forgotten nothing. The worst Chancellor in modern British history.
nef has today released a report on how we might start to dig ourselves out of this mess. It details not just the failings of this government, but how the pursuit of austerity and the failure to recover are tied to deep, long-term problems in the British economy. We need an alternative macroeconomic strategy.
- George Osborne opts for Michael Heseltine’s growth plan (guardian.co.uk)
- UK News: Osborne ‘to slash growth forecast’ (walesonline.co.uk)
- George Osborne warned budget might be last chance to salvage reputation (guardian.co.uk)
- We don’t mind austerity – when it’s not George Osborne’s idea (or Ed Balls’s for that matter) (independent.co.uk)
- Budget 2013: The six graphs that explain the hard choices George Osborne faces (telegraph.co.uk)
- Good news for elderly: major pension and care reforms brought forward by George Osborne ahead of Budget (independent.co.uk)
- VIDEO: Osborne lookalikes in UK pre-budget protest (marketcurator.com)
- Jim O’Neill: Time is rapidly running out for Plan A, George Osborne (standard.co.uk)
- Osborne refuses to change course (standard.co.uk)
- Economic analysis: George Osborne’s an ostrich without solutions (standard.co.uk)