Because of media commitments I am going to have few comments to make here this afternoon, but this one relates to an issue that only the more technically minded who read this blog might get, so I have time to make it.
After every budget statement I look at the chart of the sectoral balances issued by the Office for Budget Responsibility. The sectoral balances have to balance to zero between the four main sectors in the economy, which are business, the public, the government and the overseas sector. In effect, they simply show who is borrowing and who is lending in aggregate, and to whom.
This is the chart from the latest version, issued today:
In effect, the government presumes that in the face of a massive cost of living crisis that is going to crush demand business is going to borrow heavily to invest. That is simply not going to happen.
At the same time it assumes that households faced by a cost of living crisis that is going to break household budgets are going to repay debt, and quite heavily, fails soon. There is precisely no chance of that happening when households are instead going to be crushed by new debt.
Interestingly, there is a frank recognition that foreign lending to the UK is going to fall, as I predicted recently. The oligarchs are leaving. This is the one bit of this chart I believe.
And based on this Sunak claims he will, in effect, balance his current budget and only borrow for investment. Politely, that is pure nonsense in the circumstances.
You only have to look at this one chart to know how badly Sunak has miscalculated. The forecast is staggeringly wrong.
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I could make an argument for business investment in this economic environment, but it won’t help Sunak’s case one jot. I can see a lot of businesses investing in more automation, because the cost of economically viable labour, is going to balloon.
As to debt repayment, it has long been known that no matter how hard you squeeze a stone, it will not bleed.
Quick note, Richard. Under ‘sectoral balances’ (para.270, p.68) the OBR says: “The household sector is expected to move from being a net lender to the rest of the economy to a net borrower, as the government deficit narrows. This reflects a transition from a period where the Government took exceptional measures to protect household incomes from the full effect of one crisis (the pandemic) to one in which imported cost rises (partly triggered by Russia’s invasion of Ukraine) force households to save less to cushion the blow to real spending. The corporate sector returns broadly to balance. ”
Incidentally, this is the typical neoliberal response to a crisis, with the inevitable result. The government reduces borrowing in a crisis, and the Government passes deficit financing to ordinary people; not even the corporate sector is expected to invest, because it is in balance. So where is all the free enterprise investment he was bigging-up, coming from? The oligarchs and P&O’s owners, DP World? Notably Rachel Reeves spotted that his critique of British productivity was simply a self-evisceration of hist own monumental failures.
Sunak was challenged constantly by MPs about the huge shortfall between household incomes, especially for the poor, and the huge rise in inflation. He gave the game away (he is too glib by far), answering Conservative MPs, when he claimed, not once but two or three times, that Conservative policies worked best because they allowed people to spend their own money in the best way possible. Indeed, so why, when challmeged about support to the poorest, did he rely several times on the £500m extra support for the poorest – but not paid directly to them, but to local authorities.? So you do not receive the money to spend becasue preseumable, you are so poor you must be – at least to all modern, sharp-suited Conservatives – the undeserving poor.
Sorry, i realise in haste my comment was not clear as to timing
I have slightly changed it
What John Warren has described is Tory economic policy from 2010 to the present day. We saw household debt boom previously didn’t we?
The Tories answer to anything IS typically Neo-liberal.
That is that the answer to most crises is always more markets or more ‘freedom’ – but never any real help. If they do help BTW, they’ll just claim it back later – it’s not yours to keep.
What they’ve said to the really poor is that you are going to suffer, but its your choice as to how suffer – starvation or freezing to death.
That’s the Neo-lib line: choice not relief.
It’s obdurate dogma as policy.
It’s state rentierism.
We serve them – they, not us.
To me, even after too many years of them in power, they still have the ability to make me extremely angry and shocked at their insouciance.
The Tories are just so cynical.
Income tax cut just in time for the next Election. Same old gameplan. Election bribe which they will claw back if re-elected by putting up other taxes. That’s what they always do.
Then Sunak had a go at the EU. But as the BBC reports, without stating the obvious that he was lying.
“Has Brexit allowed Sunak to cut VAT on solar panels?
In his Spring Statement, Chancellor Rishi Sunak said it was “thanks to Brexit” that he could get rid of VAT on solar panels and heat pumps for the next five years.
He said homeowners would no longer need to pay 5% VAT on them.
After Brexit, the UK does have more freedom to set its VAT rates, but the EU is also planning to exempt these products from VAT.
On 2 March 2022, the EU Parliament approved plans to allow member states to exempt a number of products from VAT, including solar panels and green heating systems, as part of its new environmental policy.
The EU changes have not yet come into effect, while Sunak’s will start next month.”
Public sector will soak up the difference as it must. Whatever fantasy the Chancellor believes it won’t happen. Government spending will increase because it is simply unavoidable. Unfortunately what might happen is a constant drag from government resistance whereas it would be better if it bit the bullet and acted to solve the crisis.
So I understand what that chart says: by the ~2025 all domestic sectors will be in deficit, and the foreign sector will be in surplus. Is that right? How is that not a bonkers strategy?
It is not going to happen
“Wholly inadequate”.
Two words which describe this ‘mini-budget’, the government’s response to the cost of living crisis the country is facing (especially the most vulnerable), and, unsurprisingly, Sunak’s entire career as Chancellor.
True
Again reflecting on this appalling outcome – the Tories still insist on seeing fiscal policy as some sort of closed loop system whose only inlet for new money is ‘inward investment’ (oligarch, foreign, corrupt who cares!). They behave as if there is no new money to create – the idea that they are just going to fund services from lowered thresholds on student loan repayments for example is just State rentierism gone mad.
It’s incredible that this is not being challenged more effectively in the media and how many people think that all the money in the world has already been created and that that is the problem.
It’s as if we’ve forgotten 2008 and the ‘Wall Street versus Main Street’ debate. Clearly there is a Neo-lib view here at work aiming to quash the possibility of printing money for something really useful.
It is even worse when you think that if we got into a full tilt war with Russia, they’d find the money to fund killing people overnight – no problem.
When it comes to fiscal policy, we can’t have a war fiscal policy on a war against poverty, or the cost of living crises or Covid when clearly that is what is needed.
That is what Keynes ism taught me: that you CAN and MUST throw money at problems to solve them because markets just won’t step up to the plate and as the Chinese even say in their ancient Guanzi document that people can be greedy and seek to monopolise or take advantage of situations like this and the State must intervene to restore fairness and balance -an economy that works for everyone.
Fat chance here!