These are the key economic assumptions underpinning the UK budget:
There are some extraordinary comments in here. First, there's no obvious reason why growth picks up in two years: it is just assumed that after two years the UK growth rate returns to the long term trend rate. That's why growth is always two years away in Osborne's world, and always will be.
Second, that is despite a cut in government spending, and right now that simply won't happen: only government spending can get us out of recession and it is being cut.
Third, business investment is going to more than double over five years, but it does not precede growth, it follows it: indeed it falls in 2013. The relationship does not work as these assumptions suggest. The lead times are just not long enough.
Fourth, housing is going ballistic even though there's no sign of it yet. I can't see the budget having that big an impact.
But perhaps employment is the most strange. Total employment rises by 1.3 million, part of which is, by the way, population growth. But then let's look at PAYE paid, from a table I first produced earlier today:
I have now done a few calculations using the employment data and the PAYE data to see the amount of PAYE to be paid per peson per head per year. Please note the calculation is not unfair: the number of employees is remarkably similar to the number of people submitting tax returns in the UK.
Now of course some of that growth could be self employed profits growth (which makes the decline in UK corporation tax paid noted earlier today even more stark) but it's clear a lot is also PAYE. And there is no way on earth that pay, or any other incomes, are going to grow at the rates shown in this summary, especially when millions of workers in the public sector are on a 1% pay freeze.
My candid opinion then is that the assumptions underpinning the budget are simply absurd: there is no way this growth in incomes is gong to happen whatever changes are being made to the income tax system.
I don't think Labour need worry that the good times will be back before the next election: the real problem is there is no way that a recovery of anything like the scale forecast will happen.
And that may be just as problematic.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
all this focus on “public” debt when the real monster is “private” debt. Something Steve Keen’s Debtwatch site to lighten the mood!
http://www.debtdeflation.com/blogs/2013/03/20/brilliant-takedown-of-politicians-obsessed-by-public-debt/
Government uses trickery and lies in devising policies, film at 11……..
Th growth predictions for 2015 onward are la-la land stuff. They have been invented to `validate` the borrowing predictions.
As you know, Richard, if you’re an economist of a certain ilk then absurd assumptions will be nothing out of the ordinary – in fact quite the reverse, as you’ll have been schooled to believe they are the only assumptions worth working with. That may also explain the claim that they’ll be a return to the long term trend rate of growth in two years (equilibrium). And the claim that investment precedes growth – which in the real world is patently untrue (but for the purpose of Osborne’s, the Treasury’s and the bank of England’s model of how economies work we’ll assume otherwise).
But in practice I’d guess this is a bit of that and a lot of ‘let’s think where we need to claim we’re going to be in two years and make the data fit’ (which is, in any case, an approach favoured by economists of the type that I assume dominate at the Treasury). That approach works on budget day, of course, because analysts don’t have time to study the fine detail of the budget. But as the IFS did yesterday, and you show here, even data can only be distorted so far, and stupid assumptions can be seen to be exactly what they are, so with close analysis the distortions and misinformation become apparent.
Of course there’ll be no recovery of the scale and extent that Osborne or anyone in government claims. For that to be on the cards a completely different policy approach was needed back in 2010/11. Instead, over that period we have a massive tax give away to big business and the rich – who will, as is quite clearly the case already – simply pocket the money and run while the vast majority have less and less but are simply expected to knuckle down and carry on regardless. That famous Dunkirk spirit and all that, whereas really it’s a lot of very wealthy businesses and individuals saying F— y–, I’m all right jack.
Thinking ahead, this obviously leaves a poison chalice for the next government, which won’t include Tories so they couldn’t give a damn anyway. Given the extent to which poverty will have increased, local infrastucture been neglected (e.g. pot holes in roads), and the NHS in a funding crisis, etc, etc, talking about, much less implementing, further cuts will simply be untenable. So it’ll have to be tax increases. The question then is, are Labour (who may be in coalition with the rump of the Lib Dems) brave enough, and perhaps far more importantly, free from corporate capture enough, to target where they deserve to be. That is, the minority of people and organisations who have milked the recession for their own profit and benefit and in the process put two fingers up to the rest of us.
Indeed
Thank you, Ivan for writing this, you have saved me the trouble. The figures you have shown, Richard, appear to have been produced by trainee statisticians – where they have been given a business expansion model and have been asked to produce the necessary figures in tabular form.
All our political parties turn to the same sources for finance and guidance – the City and the international bankers – so there is no point in being surprised when these are the people who benefit from their policies. It is the same can of sour grapes but bearing a different label.
This link gives an indication of the way our system works
http://rowans-blog.blogspot.co.uk/
Well said Ivan. Your analysis hits the bullseye again.