Budget day blues

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We will have what is claimed to be the last ever Spring budget this week. I have no idea whether that will be true or not. What I do know is I won't be here. Country-by-country reporting is taking me travelling this week: once I finish teaching tomorrow afternoon I go on a three country tour before returning on Friday. For the first time in years I will not be doing the Budget commentary on Radio 2.

But what to expect? And what to wish for? My wish remains the budget speech you'll find as chapter nine of The Joy of Tax. My expectation is very different. Although Philip Hammnd could be delivering a budget that could transform the UK for the better he won't be doing anything like that.

So why could he do it? Five reasons, at least. First, for the first time since 2001 UK government debt fell this year. It looks like the deficit will be £56 billion but since QE of £60 billion was used there has been a decline in UK government debt. I agree that the debt and deficit are not the same thing, but the reality is debt fell. There is then no need for austerity.

Second, the deficit was smaller than expected this year and smaller than the economy needed. Tax drains funds out of the economy. That's not by chance. That is its purpose. The government prints the money it needs to spend: it reclaims it through taxation. The spend stimulates demand. The tax reduces it. The net combination resulting in a fall in borrowing means that the economy was deflated by more than the government expected in the last year. The result is that we are, quite simply, worse offer as a result. And many know that. Those on frozen or denied benefits; those without a pay rise; those waiting for health or social care; children in growing classes; those in a justice system at breaking point: all of them know all about the government underspending in the last year. And the government is going to celebrate this rather then put it right by spending this money back into the economy where it is needed.

Third, there is the fact that the market remains desperate for government debt. There is a shortage of quality debt in the world. Financial markets are crying out for it. The interest rate is back into negative territory once inflation is taken into account. There is no cost to borrowing over thirty years as a result. Extraordinarily, people will pay the government to take their money off their hands and still the government is refusing it. That really is economic madness when there is so much that this economy needs done within it, starting with the urgent need for more social housing.

Fourth, we only avoided a downturn last summer because the Bank of England delivered a QE stimulus when the government would not act. It probably can't repeat that this year a) because it can't forever show the Chancellor to be incompetent and b) because the Fed intends to raise interest rates and it cannot be too far out of line with US policy and so the only way to keep things going is for the Chancellor to do the job instead. And he will need to do so: we know the economy is slowing already: it's a trend that is going to get worse as the impact of Brexit pound deflation feeds though into higher UK prices. I strongly suspect the Chancellor will not rise to the challenge.

And fifth? Yes, that is because of Brexit. As resources are sucked into unproductive and wholly negative activity to complete a task that is purely destructive for the economy then. Additional spend has to be incurred in other areas to compensate for the economic burden that Brexit is imposing. The Chacelllor supposedly has a £60 billion war chest for Brexit, but that's just to c0ver the costs, I suspect. That war chest ignores the real economic impact of what is happening as the economy suffers neglect under the burden of massive bureaucratic action to take us out of the EU. We need a stimulus to deal with that.

But what will be get? A few small giveaways and talk of the need for fiscal prudence and austerity as if the lessons of Brown and Osborne had never been learned.

One day this country may have a competent economic policy. But we won't be seeing it this week. All we'll get are Budget Day Blues and there'll be no rhyme or reason to them.