According to the Chancellor, all that matters about the Budget is that he meets his fiscal rule.
For reasons that no one is aware of and which no one, including the City, cares about, he thinks that his fiscal rule must require that he reduce the scale of the national debt - because that has been the story with which the Tories have been beating Labout for well over a decade.
Everything in yesterday's budget was, in that case, designed to meet this goal, and according to his own data, he does meet it:
That downward line in the middle of the fan to the right is all he cares about.
There is a cost to this. If the government borrows less, someone else has to borrow more: that's the way in which any economy works if new money (all of which is debt-based) is to be created, which is the actual rule that cannot be broken because, unlike so-called fiscal rules, it is based on facts. So this is the sectoral forecast which shows who might be net saving and borrowing over the next few years:
Households are going to borrow more, by saving less. That's the price of the government demanding more in tax to reduce its debt.
The overseas sector is still going to save in sterling.
And business is going to apparently start borrowing quite a lot, presumably because there is going to be a heavy investment to fund the growth that all politicians think is just around the corner, but probably is not.
Is that likely? Yes, with regard to reduced household saving. Income taxes are going to rise much faster than GDP growth, as I showed yesterday:
That cut in household savings is likely in that case. People can't both save and pay more tax when already pushed to their limits.
But will business invest heavily using borrowed funds so that the government might borrow less? I really do not think it is likely.
My reasons are that the GDP forecasts look like this:
GDP per head grows well for one reason: it is assumed that immigration falls, dramatically:
When someone says a behaviour pattern will change radically, they have to give a good reason: there is none here. The reality is that migration is going to increase rapidly in this world as a result of climate change: that's the fact, and the above chart is not.
In that case, this chart on nominal and real earnings growth looks to be fanciful:
Rea; earnings growth of less than 1% is incredibly low and does not inspire business confidence or stimulate considerable investment. If GDP growth is actually going to be much more population-based than the OBR suggests, then even that growth is in doubt.
Can I, in that case, see the fall in debt that Hunt predicts? I can't, I admit.
But I can still see the tax explosion.
Labour really does need to say how they are going to deal with all of this because the state of the government's books is now known. I am not, however, expecting to hear much at all. If you think the credit card is maxed out and everything spending commitment has to be covered by tax, as Labour apparently does, there is little wriggle room here. Sometime, Labour is going to have to do some real macroeconomics and talk about debt financing. But I will not be holding my breath in anticipation.
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Very good explanations – I rather doubt LINO will pay any attention – since minds have been made up.
Perhaps another way of looking at this week’s shenanigans is that Hunt & the tories have set LINO up to fail – miserably. They have the measure of Starmer and Reeves, & have made a bed for them to lie in. Thus, the budget was designed for a LINO gov. & LINO are far far too economically stupid to see this. Social unrest, 1 year after the election, LINO shows its overall uselessness and authoritarianism, Tory II nicely positioned for next election.
Of course, this depends on the Tories not being wiped out.
I’m not pro-tory but suggest that the above is a possible hypothesis.
I agree that the budget was designed as a scorched earth policy for the incoming labour government.
I can’t help feeling that the Chancellor regards presenting a budget as some sort of sports event in which you win gold by satisfying his fiscal rule. In the end winning at any sport is so much easier if you are the person who decides what constitutes winning.
More people need to be aware that there is no national debt that needs repaying, no government credit card, and no such thing as taxpayers’ money. Once they no that, everything becomes clear
To be honest you only have to look at the Guardian comments section to see that most people don’t want to be bothered working at gaining a clear understanding of how their country’s monetary system works they prefer oven ready platitudes and the politician gophers for the rich are only too ready to supply them. Econophobia reigns in the UK and has been for decades.
Are not all the UK economic problems due to underinvestment, austerity and Brexit?
I read the above statement earlier today. Why not just reserve underinvestment and austerity and save the day?
Is Hunt really as stupid as he appears to be?
Those things and neoliberal government, corruption in rakeoffs for the private sector, and the perpetual undermining of the country by politicians who apparently hate the job they have been elected to do.
Richard, good blog. I think it is true Labour have eagerly jumped into the trap of accusing Tories of economic incompetence since Truss but they’ve allowed the Right Wing media to frame the details. By doing so Labour are now trapped by the same “we can’t do anything” because of the economic crisis created by the Tories. Every pronouncement from Reeves supports the Right Wing narrative on why we have an economic crisis especially the extraordinary claim, we’ve not had 14 years of failed Tory policies we’ve apparently had 14 years of failed democratic socialist policies! What we need is more true neoliberalist policies like deregulation. Labour have largely left this story to take hold in many quarters. I fear many of those who voted Conservative are being persuaded not to face the fact that their policies have not brought economic success.
Thanks