Friday, 22 March 2013

Fantasy and error in Britain's 2013 Budget

So. The Budget, then (above). Strip away the fripperies and the gimmicks, such as the one penny cut to beer duty, and you've got two stories: one doleful tale of policies gone utterly awry, and one risky error. It was always thus, to be honest - Gordon Brown was no master of the Budget box during his long tenure at No. 11 Downing Street, either - but the eye-watering pain we're going to have to live through for many years to come was never clearer.

First, the bad news. Actually, it's all bad news, but we'll start with the worst news. Remember all those targets the Government announced when the Coalition took power? Getting rid of the structural deficit by the end of the Parliament. Making sure that debt was falling as a proportion of GDP at the same time. Keeping Britain's AAA credit rating. Well, because of the lack of growth in the economy, they've all been shredded. No-one mentions these any more, and we've been told for some time that we'll be getting near balance no earlier than 2018. More like 2020, I would have thought, even on optimistic assumptions - and only with yet another slew of tax rises and cuts that will prove counter-productive in the end. The pain is only just beginning. Two and a half years in, we face at least another six years of this if we stay the course (which we won't, of course, but more of that in a moment). And for what? Hmm. To arrive in pretty much the same place we would have arrived at had we done nothing. I would slap my hand to my forehead, but I'm too busy holding my head in my hands and muttering 'no more, no more: please ask some economists what to do before you wreck anything else'.

Then the risky error. One of the Chancellor's only really significant announcements was a new guarantee of homebuyers' borrowings. Not a bad idea in itself, especially when the construction industry is flat on its back. But not a great concept when everything Mr Osborne has said since 2005 has been about 're-balancing' the economy towards manufacturing, exports and production - and away from Britons' wasteful obsession with pouring all their money into their ageing Victorian homes and hoping a credit bubble will save them from their own folly. Now he's reversing engines, and it's scarcely credible. Without expanding supply, this is just throwing some petrol on the embers of the housing market, still lively in London and parts of England's south east corner. It'll inflate prices and start us on the whole tedious roller-coaster once more. To be fair, the Government would actually love to rip up the planning laws which stop British builders actually putting up many houses, and help us break out of this cycle. But an unholy alliance of greens and 'not in my back hard' rural Conservative voters stands in their way. Still: given that progress on this front is therefore likely to be pitifully slow, dumping billions of pounds worth of state guarantees all over one single sector of the economy isn't a good idea. It may win some votes in a short-lived credit boom just before the 2015 General Election, but that's about it.

More broadly - and this was always the risk - the Chancellor has taken an axe to the credibility of British debt repayment, and indeed fiscal policy itself. Nothing he has said since taking office in May 2010 has come off or gone right. Things look much the same peering forwards as they do looking back. Does anyone really think that any government can cut police funding by up to a third between 2010 and 2018? Some local authorities' spending by up to a half? No? I don't, either. Which means that the ringfencing that's increasingly annoying Cabinet Ministers - a barrier which defends spending on schools, the NHS, defence equipment and overseas aid - will have to be lifted if we're to go on like this. That'll cause a few controversies, and then some. It'll also mean that any incoming government will, in May 2015, face three choices: massive tax hikes; more spending cuts, approaching the size of those that have proved so disastrous in the 2010-15 Parliament; or a totally new course which just blows the top off all the Chancellor's targets and massively raises the debt ceiling for three or four years.

Since none of Mr Osborne's targets turned out to mean anything anyway, maybe that'd be the best course. At least it'd be clear, up front, transparent and consistent. And likely to be deliverable.

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