Wednesday, 3 December 2014

Analysis: Osborne's plan for permanent austerity

Andrew Fisher, author of The Failed Experiment ... and how to build an economy that works, analyses the Autumn Statement 2014

Glitter and baubles

If you listened to the Chancellor's Statement you could be forgiven for thinking it was relatively benign - a sensible change to how stamp duty is calculated, and a crackdown on offsetting past losses against current profits for the bailed-out banking sector.

Of course you could quibble with both those things: the stamp duty changes concealed an £800 million tax cut to homebuyers (better off than average) including for anyone buying a home worth even £900,000. It should have been revenue neutral, but it was right to introduce a banding system to replace the 'slab system' which meant someone buying a just above average £250,000 home paid £7,500 but an average £200,000 home incurred only £2,000.

Likewise one could argue that reducing the 100% allowance against past losses to 50% was too timid, and should be 0% for the foreseeable future - given the public largesse that allows the UK banking sector to still exist.

Then of course there was the largely re-announced or re-allocated funding for the NHS and flood defences - and the inheritance tax breaks for the ISA-holding wealthy or further tax threshold rises that do nothing for the lowest earners.

However, that was just the glitter and baubles to mask his failures and a deeper, darker agenda.

Austerity Forever

As well as the Christmassy giveaways and good tidings, there is also a nightmare after (not before) Christmas. Our nightmare future is due to the failure of austerity to get even close to balancing the books - with a deficit three times higher in 2015 (£93 billion instead of £30 billion) than Osborne predicted in 2010. Austerity didn't work so we'll try it again in the next parliament.

The OBR reveals that 60% of the cuts are yet to come - or, put another way, the next five years will see a 50% increase in cuts compared to 2010 to 2015. Osborne confessed to a two year benefit freeze, an extension of the public sector pay cap until 2019, and a further £10 billion of public sector "efficiencies" (cuts, as we know them), but the OBR also revealed there will be a further 1 million public sector job cuts.

It's therefore no surprise that as a result of measures announced in the Autumn Statement, the poorest fifth of people will be 2.1% worse off.

Under Osborne's plan by 2020 public sector spending will be less than in any year since the 1930s. Just stop and think about that: we will be cutting spending back to levels not seen since before the NHS and welfare state were created. Read Orwell's Road to Wigan Pier, that's what Osborne wants.

Much of the economic growth envisaged - although downgraded from previous forecasts - is predicated on ever rising household debt, rising beyond the unsustainable levels that preceded the great crash:

It really does make you wonder whether the pointy-heads at the OBR have come up with the most ridiculous economic model to show Osborne how unworkable this all is. It might be funny if this was written as a satire, but this is an economic plan every bit as devastating as El ladrillo in Chile.

And where would this plan leave us in 2020? Still with a debt larger than Osborne predicted in 2010 that we would have in 2015. Any politician that seeks to implement this plan is proposing pain for no gain. As Geoff Tily of the TUC said:
"In reality the long-term plan is a political plan not an economic plan"
And the politics that underpin are those of Thatcher and Reagan - the "fuck you" economics of Hayek and Friedman.

No comments: