Today's spending review was pure political theatre. Little that was said and little that the OBR will print has much relationship with reality, but let me just highlight the key issues where the plans will fall down.
First growth has to be around 2.5% for five years. No economist I have spoken to today thinks that likely. We have a recession coming from the EU, China and the emerging economies, and, quite possibly another credit crunch. This forecast is wildly optimistic.
Second, there have to be £28 billion of new taxes with no down side on the economy when tax cuts are needed. But these new taxes are on employment and in the case of council tax are on poorer households. These are badly chosen.
Third, the existing forecasts for way above growth level increases in income tax and national insurance yield have to hold true - which requires vast numbers of the nation's self employed now earning about £11,000 a year on average to become seriously profitable, start paying tax and stop claiming benefits. That's as likely as me learning to speak Chinese by Friday.
Fourth, Mark Carney has to stop all talk of interest rate rises or the forecast fall in government debt costs won't happen. So Bank of England independence has just gone out of the window.
Fifth, the near impossible cuts have to be delivered on schedule.
Oh, and 1 million jobs paying more than the civil service have to be created despite the government cuts.
And last, nothing else at all untoward has to happen.
If all those things work then George Osborne is Prime Minister in 2020, not a doubt about it.
I spot one or two fatal flaws in that plan though.
And I really can't see what excuse can be given for failing this time if Osborne wants to succeed on 2020.
So so good luck George, but I think you've written the script for your own political obituary.
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Are you going to write a post saying what you would put in an Autumn Statement if you wrote one this year?
Read chapter 9 of The Joy of Tax
And a knighthood for Robert Chote in all likelihood, Richard. Even the NAO has never been as craven as the OBR. And that’s saying something.
How accurate has the OBR been since it was set up?
It’s June 2010 forecast for 2015 is £59 bn or more out
The OBR shows future tables for NLW and NMW – where does it use these differing values in its forecasts?
Also OBR says improvement in finances was from net migration. But if the EU referendum decision is ‘exit’ would we still have net migration to bolster the figures alongside the decision to stop/reduce working benefits for EU workers?
I will be candid – I do not know the answer to those questions
You can trust Osborne’s plan as much as you would trust backing an outsider with you life savings, or if you are poor ever getting out of it by buying a lottery ticket. Incidentally if you are a poor lottery ticket purchaser you will be pleased to know you are digging the government out of a scrape of having to admit they can’t fund athletes for the Olympics so your contribution is going to be pillaged. You are also going to fund all the wonderful arts and culture you are never going to see or benefit from. Smoke and mirror thieving from a morally bereft Chancellor and dishonest government.
I should also have added that after today any pretense (however flimsy) that the OBR was/is independent has been demolished. Itss brief was clearly to fix the figures such that Osborne could escape the Tax Credit Cuts hole he’d dug himself so deeply into. And they did. End of!
Agreed
While I have a considerable amount of respect for Robert Chote, having worked with him for 2 years at IFS in the early 2000s, I’m surprised, on the face of it, by the OBR’s upward revision of its forecast for tax receipts. It would seem to me that there is a hell of a lot of downside risk – e.g. HMRC staffing cuts leading to ever-lower yields, the very strong probability of an economic downturn this side of 2020, etc. I hope Robert would have enough integrity and independence from the Treasury *not* to simply cook the books because Osborne said so, but I will certainly be digging into these forecasts over the next few weeks to find out more about what is going on. On the face of it it looks like Osborne has either been exceptionally lucky… or someone is pulling strings behind the scenes. I think Labour should make more of this in its response to the Spending Review.
Howard
I will alos be digging
I simply do not believe thee forecasts
Richard
“I think Labour should make more of this in its response to the Spending Review.”
Response? -pigs might fly. What the bejaysus are Mazzucata/Pettifor/Blnachflower et al doing as ‘advisers’ , cringing before the Overton Window?
Advisers are not asked about presentation
“Advisers are not asked about presentation”
Then we need to understand who is blocking the transmission of the advice and try to grasp the psychopathology of still offering no challenge to austerity concepts that could resonate with the public-millions are suffering because of this lack-why isn’t advice being transmitted to presentation?
I guess you need to start at the top then
I’ll second Richard there.
OBR =
Optimistic
Budget
Rhetoric
I agree with your analysis – austerity is a political choice that is not the best way forward to ensure a fair & equal society. My comment is not to cause trouble or argue with you, but as a campaigner for disability rights I have to let you know that your use of the words ‘the disabled’ is not politically correct. It implies that disabled people are one homogenous group without individual identity or autonomy, in the same way as racist labels are used like ‘the Blacks’ or ‘the Muslims’. As such it is always best avoided and replaced by the term ‘disabled people’ or ‘people with physical or mental health impairments’. I am sure that this was simply an oversight but nevertheless it is an outdated term that many disabled people find offensive, myself included. With respect, I request you edit the text and refrain from using ‘the disabled’ in the future. With regard to your comments that disabled people will suffer from Tory cuts you have my complete agreement. In fact disabled people have been unfairly targeted by a Government that obviously considers disability to be an inferior state that should not be ‘encouraged’ by a ‘lifetime on benefits’. As a PhD researcher and disabled person myself I have experienced appalling prejudice which has been rubber stamped by Tory policy & ‘shirker vs striver’ rhetoric. Thank you for recognising this in your text & apologies for not contacting you directly to make my request.
I sincerely apologise
I cannot edit now on my phone but I accept my error and will try not to repeat it
Thank you, I appreciate that.
I have made the changes
I don’t understand why the OBR give such optimistic forecasts, do you?
Effectively part of the Treasury
The devil in me says that it’s so that they and their families won’t have suffer cuts to their tax credits when their inaccurate, nay, cornucopian, projections fail to materialise.
But that would ignore the incoming Disney dystopia of Universal Credit. It’s a small world after all…
Arise, Sir Robert 🙂
Fingers crossed.
Osborne in Number Ten by 2020?
If he has served his masters well, all things are within reach… If you believe that media spend, identity politics, bribing the core vote and an ineffective opposition guarantee election victory.
I don’t *quite* beleve it. But the evidence runs against me.
Also: the retreat from Workfare breaks the policy narrative of ‘Maximise the concentration of wealth’ – have I missed something?
Osborne’s inconsistent in his excuses, but not in his underlying policy agenda; so much so, that I’d look very closely indeed at this, and look for undisclosed effects at the very bottom of the labour market.
Or perhaps there’s some analogy between helicoptering money into an economy with no demand, and pressing wageless workers into an unproductive economy with no demand for labour: if so I cannot see it. Or at least, I cannot see it mattering to Osborne.
Something else is going on and in all probability it is even worse than Workfare.
Agree with your analysis but think he will use the likely below par global growth as cover for cuts. This simple narrative is working and he could then promise more spending post the next election. Truly hope I am wrong and so depressing to see how people cannot see through it. As for the OBR even a cursory glance at their record should put a discount on anything they say.
Thanks for this informative post. I’ve been looking at the OBR November 2015 forecast documents here: http://budgetresponsibility.org.uk/economic-fiscal-outlook-november-2015/ and I cant see any clear explanation of where 27 billion has come from? Will it be the case that I’d have to compare the tax receipt tables in this document with the July one to see where 27 comes from? Why is it not outlined clearly? And why dont the headlines say 27 billion ESTIMATE. All this windfall sounds like Osborne has the money now.
£27 billion is a five year total for additional tax revenues
Thanks for the reply. I’m interested to know how Joe Bloggs on the street sees where this has come from though? Is it as I say comparing the July & November tax receipts table?
I consider myself reasonably good at spotting BS right wing headlines but this “windfall” thing caught me out and I’m interested to know how this figure has been reached.
It is an estimate
The forecasts have been changed
Call it fiddling the books
Adam, this is because we have a labyrinthine Government accounts system that allows these shysters to presen things as if natural limits have been reached and there is ‘no money’ unless you rob Peter to pay Paul’, it’s all part of the pretence that the Government is like a household and not a money issuer, so it uses smoke and mirrors to con the public. Worth re-quoting Bill Mitchell on this:
“Governments create a complex accounting web to hide the intrinsic characteristics that define their currency-issuing status. These voluntary creations have little economic purpose but do serve to engage politicians in the games they play about debt ceilings, ‘disastrous’ deficits, and all the rest of the lunacy that ignorance breeds.
These labyrinthic accounting trails are quite often time-consuming to work out but they all have the same intent — they make it look as though the central bank is in some way divorced from the treasury functions, that tax revenue ‘funds’ government spending and that funds raised from debt-issuance funds government spending beyond the tax revenue.
All this is convenient for those who wish to maintain the myth that taxpayers fund government spending and are therefore being robbed when the government spends its money.”
Also (if Richard doesn’t mind) worth appending Wynne Godley and Franciss Cripps’ comments at the start of their 1983 book on Macroeconomics:
“To put it crudely,economics has got into an infernal muddle. This would be deplorable enough if the disorder was simply an academic matter. Unfortunately the confusion extends into the economic policy itself. It has become pretty obvious that the Governments of many countries, whatever their moral or political priorities, have no valid scientific rational for their policies.Despite emphatic rhetoric they do not kno what the consequences of their actions are going to be. Moreover, in a highly interdependent world system this confusion extends to the dealings of Governments with one another who now have no rational basis for negotioation.”
“Osborne in Number Ten by 2020”
Ozzie’s in number 10 now….you just think the official occupant of number 10 is the prime minister (so does he).
People keep underestimating Ozzie……I await the dramatic death of Boris-de-bouffants hope to move to 10……I’m sure Ozzie is planning something.
Well, if “Ozzie” is relying on ludicrous forecasts, and he himself, has any doubts about them it would be fair to assume that he has a Plan B.
He might try talking the Argentine regime into an invasion of the Falkland Islands. Well, something like that. When economics fails the usual plan for this lot is unity in national crisis. Mind you it is hard to plan that sort of thing. Nonetheless the plan B possibilities may be worth be worth investigating (anticipating, exposing sabotaging, whatever).
Another possibility is that he is simply the Gordon Brown of the current regime a frustrated successor-in-waiting, waiting too fail.
I dont like either of them but do you not think in this “image means everything” political world that Osborne comes across as a very cold almost inhuman character. Where as Boris is this bumbling , jolly fool (or at least that’s how he likes to be perceived) who people seem to like and would probably attract large votes just because he’s Boris.
As you hint though Osborne is in the better position to try to influence the outcome. Although Osborne would have to keep his fingers crossed that things like the current housing bubble or other economic issues dont occur before the leadership change.
“Osborne comes across as a very cold almost inhuman character”
To say the very least. If the Tories cannot see that, more fool them. I can’t believe that they would actually give him the leadership, he cannot and will not ever be popular.
If he does become leader, Labour would have no excuse for losing against him.