It is two months until I expect to be sitting in Jeremy Vine's studio discussing George Obsorne's budget minutes after he sits down on March 16. I admit I am looking forward to it, although as ever the challenge will be in responding to a speech about which I will know none of the detail because none is published in advance. And on this occasion the challenge may be bigger than usual. After all, what is George Osborne going to say?
In November George Osborne did two things. The first was he offered a view of what he thought a path to growth might be that would permit the cuts in government spending he thinks desirable. Second, he fudged his spending commitments believing that growth would let him do so: more than £20 billion of savings effectively based on growth expectations were committed to plugging spending problems.
And now his assumptions look hopelessly misplaced. Market sentiment has changed radically. The chance of inflation looks remote. Interest rate increases are incredibly unlikely. We know that it is probable that government borrowing will increase this year compared to last, which is a trajectory that is the exact opposite of what George Osborne intended.
But it's not just events that have caught George Osborne out; it's strategy at all sorts of levels that has too. Politically it's very difficult to explain that your new government that is committed to eliminating a deficit as its one and only identifiable economic strategy is not going to come remotely near that objective as things stand. Of course Osborne will have the luxury of saying that it is events elsewhere that have made this inevitable, but that was true for Labour in 2010 and it did not work for them.
And there is the question of whether he will stick to that strategy given, first of all, its inevitable and utterly foreseeable failure and, second, the fact that if he does he will exacerbate all other problems we have because austerity inevitably reduces GDP, witH that tendency being exaggerated in a recessionary environment. Justifying doing so will be hard.
Next there is the question of deflation. With oil prices low, and likely to be that way for some time, and with the likely knock on effects of the blatant exporting of deflationary pressure from China and elsewhere as it uses exchange rates aggressively to maintain domestic employment, the risk of deflation is very high. This is a disaster for those in debt and for investment. Can Osborne really survive that dual pressure for long?
If so, what will he do in the face if that deflation? The obvious logic is that the government should spend, but that's incompatible with austerity. Alternatively he could do QE , but another round of banker gains is not going to appeal politically; or there is People's QE, which would be good. But can Osborne really get away with embracing Corbynomics?
What too of the welfare state? When growth will be far distant on the horizon is it politically possible to demand yet more cuts and not have them seen as pure vindictiveness?
Then add the EU to the mix. Never can such a decision have been so badly timed. Cameron is really not going to have very much to offer on this issue; we all know that. Osborne has to hope fear will hold the UK in Europe. At least on this occasion the fear could be sold with complete conviction. But will a government that voluntarily put us in such a mess really ask for support with similar conviction, especially against a dual background of massive (possibly irreconcilable) division in its own party and of having its own economic policies in tatters all around it? Can such a government win the confidence vote that the referendum might turn out to be? You have to be a decided optimist to be sure.
What else is there? Scotland, if there is Brexit.
And the collapse of the South-East England housing bubble at some point.
Matched by negative equity for many.
And a rush of buy-to-let properties being dumped on the market with a consequent housing crisis.
With the obvious risk of a banking crisis for which the tokenism of the post 2008 reforms have left us very ill prepared.
All of which suggests that many of the recently created, lowly paid, flexible hours, private sector jobs may be nowhere near as durable as was thought and unemployment may rise, with no guarantee that this will mean migrants who took many of these jobs will leave as the scenario in many other states will look no better and may, if the European Central Bank performs as badly as it has over the last few years, be worse.
Alternatively Osborne might pretend that all of this is just a minor blip that will go away. If he follows that route he will suggest a change of course in the face of a storm would be most unwise. That, however, would be the strategy of a man who knew his luck is nearly over. But maybe, just maybe, that's what he already knows.
The next couple of months will be interesting.
What follows may be worse, whatever Osborne does.
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He will probably suggest that the growth of the past few years is proof positive that he was right all along with austerity, and between him and the media try to sell that more and bigger is needed.
It’s a terrible time to be young, old, disabled or poor now in the country. Just think of the horrors that await us when the proverbial really hits the fan.
But Osborne is the man who has pretensions of becoming the next PM of this country. I don’t think he sees himself as a man whose luck is running out. People who have as inflated a sense of entitlement as George Osborne has never do.
Focusing on the question of why “it did not work for Labour in 2010” it is also accurate to observe it also did not work for them in 2015.
The Labour narrative on this issue on both occasions was not just woeful, inadequate and unconvincing it was mostly absent. Moreover, in 2015 and the years preceeding there was no narrative coming from within the Labour Party which challenged the basic precepts of the coalition Government’s neo liberal economic policies and approach. There was no alternative paradigm offered up. No narrative challenging the economy as a household meme; nor the basis of the supposed increase in employment, GDP figures,
the bailing out of big finance which caused the deficit and the economic crisis and collapse; little on the level of tax evasion by big corporates dwarfing the losses from “benefit fraud.”
Despite the fact that this appears to be one of the key factors identified in the recent report about why Labour did not succeed in 2015 it is more than reasonable to have little confidence that this will be addressed. To do so would require at least two actions for which the legacy tendency have no stomach:
Firstly, as also identified in the report, it would mean adopting characteristics too many do not possess; ditching managerialism in favour of leadership and telling electorates what hold views and beliefs which are not congruent with reality that they have got it wrong, why they have got it wrong, and how things actually work on the economy and other issues where too many effectively think the equivalent of the moon being made of green cheese
Secondly, and crucially, it would mean many in the Party having to challenge their own mistaken beliefs in the neo liberal and neo con approach. Because that very absence of a challenging narrative and alternative paradigm is one which the report concludes should not be touched with a barge pole. Challenging the mistaken beliefs of electorates on issues which diverge from the narrative of the past forty years is not only verboten it is also an admittance that those who were supposed to offer an alternative have nothing to offer because they also believe and have invested psychologically in this bollox.
That is why the legacy tendency which has dominated the party for too long are trying everything possible to undermine and destroy the alternative narrative and those who are attempting to offer it. It challenges their own world view and reason for being.
Until that boil is lanced there will be no effective alternative narrative on this and other issues as too many of the leading players and their supporting cadre have invested too much of themselves personally in the neo liberal economic narrative.
Look forward if you will, personally I am dreading it.
For reasons that often escape me I embrace the future with optimism even when I have every reason to be pessimistic
From my window, I can see my parish church. It has been a mute witness to the Black Death which carried off a third of the population, the Wars of the Roses, Reformation, Monmouth Rebellion ( I’m about six miles from the site of battle of Sedgemoor ) the industrial revolution, the gaining and losing of an Empire, two world wars and Margaret Thatcher.
Despite that we’re still here. Let’s be optimistic.
Agreed
Perhaps this article in The Independent might encourage the left to get educating the electorate as it suggests they are in fact more left wing than they think – probably itself a legacy of ‘right-thinking’ neoliberalism.
http://www.independent.co.uk/news/uk/politics/britain-could-be-more-left-wing-than-people-assume-study-finds-a6813801.html
His National Infrastructure Commission will recommend the creation of a National “something or other” Investment Bank to fund infrastructure by issuing bonds
(to be bought by either Pension Funds or the BoE with it’s recycled QE money). It’s his version of a green economy i.e. Recycling other people ideas.
I will claim credit
1)According to the rules won’t the bonds have to be purchase by pension funds first and THEN the BoE
2) presumably it won’t be with anything recycled as this would involve the BoE selling (‘unwinding’) its QU assets through the markets and then using this money to purchase the NEW bonds off the market.
3) Would it just not create NEW money for this and add to its asset sheet?
‘And the collapse of the South-East England housing bubble at some point.
Matched by negative equity for many.’
But hasn’t someone got to take the hit for this? I mean if the negative equetiers don’t it will be the young/those wihtout inherited money/poor/vulnerable that will and are taking it.
There’s no resolving this, it seems to me without a ‘hit’ somehwere. What other solution is there-waiting for a sextupling of wages? Bailing out the negative equity on some sort of assets/income assessed basis to level out the losses would make more sense then the economy could at least loose its major ball and chain.
The Housing issue is still a taboo subject in the UK.
Wage inflation is the eventual answer
It is the way bad money is driven out
Over what period of wage inflation though? With London purchase prices now at ridiculous multiples of average earnings, 10x joint median income for 2 bed flats/houses, that’s an incredible amount of wage inflation to bring it back to normality.
The crash needs to happen and that will lead to deposits being wiped out and some left in negative equity or even bankrupt. Still, no one was forced to buy a house and my sympathy is limited for those who thought that house prices only go up.
For those of us without BOMAD (or those who refused to spend such money on insane bubble prices) it isn’t equitable to be forced to wait for wage inflation, which doesn’t look imminent, before purchase is possible.
Of course an increase in social house building would ameliorate the problem whilst also helping boost jobs and the demand that comes with more/better jobs. Frankly stupid that we’re selling off such valuable housing stock right now!
There is no perfect solution
Social housing is part of it
It seems inevitable that Osbourne will try to hit the defecit reduction targets, or at least try to come close to them. After all as you say it is his main policy focus. I would suggest that if Osbourne can get the defecit down to perhaps £20-30bn he will argue that he has been successful.
We all agree that ‘expansionary’ cuts will not be successful in acheiving deficit reduction. All things being equal. Therefore my guess is that Osbourne will:
1) Relax some of his costly spending committments such as increasing the personal allowance or corporation tax cuts. (which can save billions per year)
2) Raise more revenue through tax avoidance measures or targetting of excess private sector profits (this is not necessarily a bad thing)
3) Privatise things such as Ch4/anything he can think of.
4) Incentivise private sector activity in ways that potentially lead to bubbles and are not in the nation’s long term interests eg. some sort of facilitating of private sector housebuilding through the planning system.
5) Shift around expenditure and revenue, so that revenue will be attributed to this parliament, yet will end up being costly next parliament. (he has done this a bit preiously, but can’t remember off the top of my head on what- I think maybe something to do with pensions.)
Those are just my suggestions at the type of things he will be looking towards so that he can at least get close to closing the defecit.
I will be honest: I don’t think that tinkering of that sort will be enough. His problems look to be fundamental
http://www.theregister.co.uk/2016/01/15/apple_irish_apple/
That would be good
I do wonder if the figures sounds high enough