Wednesday, 22 August 2012
Britain's budgetary retreat: when will they ever learn?
It's tough being Chancellor. The wind can change. The skies can darken. Events can take over.
But there's no excuse for getting the single most important thrust of policy - the budgetary balance, and the mix of spending within that budget - totally wrong. That's what Chancellor George Osborne (above) did when he adopted his 'fiscal mandate' - to eliminate the structural deficit (that part not explained by the ups and downs of the economy), and to see debt falling by the end of this Parliament.
There's not much chance of that now - not unless the UK economy goes on an unlikely (but possible) growth streak between now and 2015-17. Yesterday's news, that borrowing is in fact going up and not down, despite the medium-term trend of a falling deficit, is just the latest sign that the strategy hasn't worked. The figures are highly uncertain at this stage, but a weakening of the fiscal position in July - when the books are usually in the black - is an ominous sign indeed. There are some one-off reasons for this, of course - the North Sea oil flowed rather less strongly than usual - but these are harbingers of the energry-scarce world to come, not the 'blip' civil servants think they can dismiss with a wave of the hand.
That's what we've been saying here for two years: that the Coalition's plan to cut so rapidly, and to do this by slashing infrastructure spending rather than current outlays, amount to the most misguided fiscal policy since the disaster of 1980-81. That debacle destroyed a quarter of British manufacturing industry in just a few months; this one has taken us into the longest recession since the 1930s (and possibly since the late nineteenth century). It's no consolation to be able to say: 'I told you so' (though I will anyway, thank you very much). That just shows how few people listen to academics - and to economic historians.
It's no wonder that the Chancellor's erstwhile cuts allies are turning against him, and that Liberal Democrats are talking about drawing up their own economic strategy that relies somewhat less on cuts, cuts and more cuts. On the day that the Greeks are asking for more time to deliver their own austerity 'package' (for which read: unlikely and unrealistic fantasy), it's a salutary reminder that there are alternatives to our present masochism. There are always alternatives. As we've said here before: build more houses; build more roads; cut taxes... But do something. Anything will do at this stage - if it boosts aggregate demand. Some in Whitehall's corridors of power are beginning to come round to this case, if slowly.
Meanwhile, the Treasury is thought to be drawing up contingency plans to reduce spending still further, if the new Office for Budget Responsibility says that the fiscal mandate is unlikely to be kept in its autumn judgement. Another policy doomed to fail; another strategy that will undermine, rather than underpin, confidence. When, oh when, will they ever learn?