George Osborne looked remarkably smug after his autumn statement.
If he was to be believed all is now rises and sunshine in the UK - compared to what was forecast in March this year, and as we all know, that's now just about as far back as Tory party history goes. If he and the OBR to be believed serious growth is but two years away (it always is in OBR models; it's the way they're built) and the groundwork for massive tax giveaways in March 2015 has been laid. Plus, he's already announced his electoral trap for Labour - a vote on mandatory budget balancing. You'd think a win in May 2015 was already secured, but just maybe not all is as simple as he'd have us believe. It's time to ask what could go wrong for George.
To understand that the messaging in this autumn statement / budget have to be understood. Those messages are:
- Austerity works
- Good times are returning
- Growth is here to stay
- Mortgage and consumer credit is available to all who want it fuelling housing and consumption even though wages won't
- Jobs will follow
- It can be promised that debt will come down as a result.
And that's about it. Seriously, that's the premise of the Tory election strategy and economic policy.
But there are some key assumptions to this:
- No one builds too many houses too soon to dampen housing demand and so prices
- People won't realise house price increases are a recipe for disaster
- Mortgage demand will collapse as the prospect of increasing interest rates dawns on people
- The Eurozone continues to stagger and not crash
- People continue to borrow despite falling real incomes
- The stock market does not fall over, anywhere
- Debt does not grow more than forecast (as it has done ever since 2010, this statement apart)
- Jobs do follow
- People don't get fed up with falling real incomes
- A major pubic service (the NHS, prison service, the courts, etc) dooes not collapse into chaos
- There's no major infrastructure or IT failure because of a lack of investment
Now, let's be honest; I can't say any of these things will happen. If they don't then all the Tories have to do to won is something no one has done in living memory - which is increase their share of the vote after a term in office. Which won't happen if the fear factor can be played by the opposition parties the biggest of which, by far, will be to ask the question "What happens when your mortgage increases in June because George borrowed more in the last 5 years then any other government in history?"
But suppose anything does go wrong: almost any one one from that list? I just can't see how Osborne wins then.
Now don't get me wrong: right now I am not sure Labour has all the answers either because all too obviously it is still missing sitting ducks whatever jokes Ed Balls had to make at the Despatch Box today. In that sense Labour may be George's best hope, however much it pains me to say it when like all true democrats I crave genuine opposition to any government - whatever its colour (just as I regretted the Tory failure to oppose for 13 years of New Labour rule).
But on balance I think the chance of something going wrong with Osborne's wing and a prayer plan seems high with 17 months to go. And for the sake of all who have suffered under this government that is a lifeline of hope.
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I’d like to know how much of this so called growth is London based and caused by foreign investors buying property in London (capital gains tax free) and thereby putting cash into the system and creating a London centric property bubble. This allows property owners to sell up or remortgage and spend money as consumers. The housing bubble coupled with olympics appears to have given some growth in construction as well. If all the growth is Service industry, Construction in the South East and Consumer spending through Foreign money coming in and more credit, IMO it’s not real or sustainable growth.
How much real growth is there in manufacturing and construction one wonders? – not that I am a fan of rampant growth anyway.
Tim
The answer is it us almost entirely south east England and in no small part property linked
I live in Fulham and prices are going through the roof (which may trigger me to sell eventually), not because of foreigners George was talking about, but because of French and other victims of European tax systems still see value in London.
I am Belgian, where we really have a screwed up tax system, but it has attracted even more French than London. The liberal (right of centre party) may lose the majority in a key council in Brussels, because the rich French can’t vote!!!!!!
So yes, things are never as simple as they look!
I know what some people will say. We do not want those foreigners, but hell the work they provide the first 2 years they move into the borough!!!!
On the other hand, as the Manhattan property bubble has proven in the 80s, a property bubble bought up by foreigners is a great thing for the domestic economy. Eventually, the bubble will burst, but the profits have gone to domestic sellers and the losses to foreign buyers…
Fulham should not be confused with the UK
Fully agree Richard, but the bubble is in London and hence less relevant!
“Mortgage demand will collapse as the prospect of increasing interest rates dawns on people”
I think the above is practically a racing certainty.
As is:
“People continue to borrow despite falling real incomes”
The government are desperate to get borrowing going again. They know real investment in the economy isn’t happening anytime soon, so juicing up the housing market to give banks a massive windfall in money from mortgage debt which they hope will have the added effect of getting borrowing to consume going again.
That is until the bubble pops, of course!
http://touchstoneblog.org.uk/2013/12/were-back-in-the-old-growth-model
I see very little evidence to suggest that the NHS won’t become a disaster zone at some point in the next year. It’s a mark of how bad things are already that having designed a semi-privatised system that removed the Health Secretary from the equation (to deliver that holy-grail of most governments, blame-free ministers) we now know that Hunt has already had to resort to ring up the CE of several trust to hassle them about various issues that would reflect badly on the government.
Beyond that the underlying level of poverty in the UK continues to increase such that the scale of the use of food banks is likely to become endemic in some parts of the UK by the end of 2014. You’ve already exposed the true reality of the subsistence earnings of many of those forced into self employment. And then add to that the fact that we now also know that IDS’s universal benefit scheme has turned into a disaster (as many predicted), with the technology simply unable to do what IDS promised, and we have a national scandal in the offing.
Ultimately though, we are just entering the phase where the slash and burn approach to public policy and the structure and activities of government and public service more generally that’s been a hallmark of ConDem policy since 2010 is now beginning to come back and bite them. That trend will gain momentum through 2014 and given that it takes at least two years to stop these outcomes once they’ve been unleashed it will prove impossible for the government to escape the blame, even with most of the media covering their backs for them. The extended honeymoon period in which they’ve been able to blame Labour for all the ills of the world is now well and truly over.
Oh Ivan, surely you know by now that for this government, and it’s supporters/ideological fellow travellers, everything, but everything is the fault of (a) Gordon Brown, and (b) the victims of their own policies e.g people going to food banks.
And anyhow, according to that intellectual titan George Osborne, the economy is recovering! I sincerely hope that you are correct that their hopeless policies come back to haunt them, albeit at the cost of much suffering of innocent people. Just don’t expect any of them, for one second, to admit responsibility. After all, although right wingers are the first to accuse others of being irresponsible, I’ve noticed they’re often the last to admit responsibility for mistakes themselves.
To do that requires some kind of moral compass and humility.
Ivan, you really need a blog of your own. Your comments are always worthy of posting to Facebook. I don’t think you use Facebook too, do you?
I have to say I agree…
I’ll set it up for you Ivan
No I’m not a Facebook user, Carol, though I do have a personal page that I occasionally use for communicating with family and a few friends. But I’m flattered by your comment. Thanks.
Richard. Thanks for the offer, though without the inspiration provided by what you publish here I doubt I’ll be particularly productive. We shall see 🙂
There has to come a point where English people understand that you can’t make a supportable living out of flogging each other houses at increasingly absurd prices.
The Germans think we’re mad &, TBH, I do tend to agree with them.
I must say, I like that Ian Duncan-Smith fellow. The vast majority of politicians love to assert themselves, but whenever he is asked to comment on progress on his brilliant UBS scheme he only mumbles a few words after another chap has gone on about HIS achievements. It goes to show what a decent,self-effacing guy he is, doesn’t it?
What do you mean, colossal disaster ?
Yes…….