The diminished state

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I am aware that someone recently said that my twittering was 'just the right side of grumpy' but in truth I am one of life's optimists. If you campaign for tax justice you have to be since the odds are so massively stacked against us. But, optimist or not, today's Autumn Spending Review was depressing.

It's fair to say I did not have high expectations: the OBR forecast published in July gave me no reason for significant hope, and if anything the repetition of its dull mantra that a budget balance will be achieved in five years time gives no cause to change that view. Remember that ever since George Osborne has been at the government despatch box fiscal balance has always been an achievement to be fulfilled five years into the future: that's simply the inevitable outcome of the way the OBR does its forecasts and not due to any prospect that this goal will be realised in practice.

So, assuming that this forecast is as unrealistic as all the rest have been (and the failure of October revenues to match forecasts made as recently as July suggest that is likely) what else did George have to say?

Excuse me if I ignore some of the micro detail for a moment: on a day like this all that is intended to distract from the big themes. A U turn here, a small tax increase there, all tinkered but a few billion with the overall totals: now the big messages matter.

So, George Osborne has confirmed his belief in expansionary fiscal contraction. This is the absurd assumption that if the state shrinks the private sector will automatically grow by more to make up the difference. There are four key implicit assumptions inherent in this theory. The first is that we are at full capacity. But we are not. The second is that the private sector cannot expand the economy without the state shrinking. But that is not true, and never has been. Third, it assumes that the private sector is inherently more efficient than the state. This is not true: the US private health care system is twice as expensive as the NHS for overall worse healthcare outcomes. And it assumes that what the private sector offers is better than the state alternative. Ask those who used to be state employees who are now on zero hour, minimum wage contracts and it is unlikely they will agree. Osborne's assumptions are wrong.

Osborne is also wrong to assume a government can cut its way to budget balance. As has been proven time and again across Europe over the last few years, this is not true. The assumption presumes that the economy works like a household or company. For either of them if costs are cut (for example, by cutting employment) then, in effect, someone else (the sacked employee or the government) picks up the bill and the company does not. But at the level of the national economy any cutting in government spending is identical to a reduction in someone else's income unless the economy is at full capacity and close to inflation, neither of which is true in the UK right now. In the situation we are actually in then such cuts in spending simply reduce the size of the economy. Cuts shrink our growth, our incomes and so our tax revenues and as a consequence the chance that any if George Osborne's objectives will actually be achieved. Cutting right now is the exact opposite of what this country needs.

Third, whilst it is true we did hear George Osborne nod in the direction of the need for more investment in housing in the UK the measure was too small (100,000 houses offers when 200,000 a year are needed) and the aim is not to increase overall well-being, which would be achieved by delivering these houses on secure tenancies at affordable rents for the families that need them close to the places where they can find work, but is instead solely designed to increase UK house prices by subsidising those paying the UK's already over-inflated purchase costs for property. This is vital to George Osborne for three reasons. First, he needs house prices to rise because their doing so is fundamental to his growth forecasts. Second, he needs households to borrow more because unless they do the government's debt cannot fall: this is sectoral balancing at work. Third, he needs to create a house price bubble to deliver the impression of a feel-good economy for his core voters.

That feel-good factor will not exist for many others. The £4.4 billion of tax credit cuts designed to hit 3 millions of the lowest earning working households in the UK will happen, just they now shift into universal credit and happen a little later than planned. How these families will make ends meet when facing real cuts of maybe 10% or more in their household incomes defeats me, but that's is what they will be required to do. There is no economic logic to this: if these people could have increased their incomes they would already be doing so. This is instead a policy of punishing those deemed by the believers in market ideology to be the losers. These market believers know (they think) that that those on low earnings are losers and so not worthy of support because their low incomes prove it (I have heard variations on this theme said). This justifies, in their view a policy intended to make them 'strive harder' or lose out if they don't. But those thinking this way forget that it's s the asymmetry of power in the market system, the destruction of trade union rights, the denial of access to capital (both financial and human) and the construction of the tax and benefits system that makes it nigh on impossible for many to change their outcomes through absolutely no fault of their own, all of which is ignored by the market fundamentalists, As a result these people will ignore the suffering of those that will be created by their misplaced beliefs.

The suffering will be more widespread than that though as the values that have underpinned our society, of compassion, of care, and a belief that it is the role of government to correct for market failings which those in power now deny exist, are all diminished. 

And that last word - diminished - is perhaps the key word with which to summarise this spending review. We have a government that wants to diminish its role. They are driven by an ideology that diminishes the importance of community. And they want to diminish the economy. In the process they diminish the country they are meant to serve. And that is not the politics we need or deserve.