The autumn statement: the good, the bad and the ugly

In July last year I wrote about the gamble that the government had taken with its austerity programme:

Here’s the big gamble – government’s contribution to GDP will be slashed, with the expectation that business will take up the slack. Osborne’s budget is a love song to big business, a bid to raise the British economy on the silken wings of private enterprise. If the gamble pays off, then British business surges ahead, our rising growth in GDP towing government finances back towards the black. If growth stalls, then the budget will make things worse, not better. All our eggs in the economic growth basket, so to speak.

Yesterday we got confirmation that the gamble hasn’t paid off, and Chancellor George Osborne had the most thankless job in the country, stepping up to the dispatch box with an autumn budget update that could only be bad news. The government has slashed spending, but the private sector has not been able to pick up the slack, for a whole range of reasons.

The government will deny that yesterday’s cobbled together package of growth measures represents a U-turn, but the fact is that there are a number of things that had been cut that are hastily being put back:

  • The Building Schools for the Future programme was axed and countless construction jobs lost in the process, and now we have a whole new fund for building new schools.
  • Surestart nursery budgets have been cut and some centres face closure, but Osborne is now announcing new nursery provision and the expansion of early care.
  • The research budget was frozen rather than cut in the spending review (a real terms cut of 10%), but this week sees tax credits for research and development to stimulate innovation and growth.
  • The Future Jobs Fund, which provided my brother with a job recently, was cancelled and then replaced this week with an uncannily similar new initiative in the face of rising youth unemployment.

Of course, the new schemes that are replacing the old ones have been recast in the Conservative’s image, so the schools fund is for new ‘free schools’, not re-building decrepit urban schools. The government is doing what Tony Blair admits his government did – spending the first two years trying to undo the last government’s influence rather than getting things done.

To be fair to George Osborne, his statement has some good things in it.

  • Britain is maintaining its aid budget for example, when plenty of others have let that slide in the course of budget consolidation.
  • Yesterday’s update has an unusually long-term decision in it, to raise the retirement age to 67 in 2026. People will whinge about this, but it is absolutely the right thing to do in the context of an aging population.
  • I was also pleased to see new investments in the railways, especially the building of the missing link between Oxford and Bedford. This would have been part of the east-west ‘varsity line’ that joined Oxford and Cambridge. It was removed in 1967, a stupid decision that requires rail users to travel into London and back out again rather than make the quicker cross-country journey. The Northern Line extension into Battersea is also welcome, opening up a somewhat lost area of London.

Unfortunately there are also some shockers too:

  • Osborne took the opportunity to put the boot into the Robin Hood Tax: “we will not agree to the introduction of an EU Financial Transaction Tax” he said. He then added “it is not a tax on bankers; it is a tax on people’s pensions,” a thoroughly bizarre assertion. Since the tax is collected nationally, it would actually be one of the least painful ways of bringing down the deficit, and the IMF describes the proposals as ‘highly progressive’.
  • Then there’s the falling back, once again, on unsustainable transport as a form of economic stimulus. We had it in the budget speech, and here it is again with new road projects fast-tracked to create construction jobs, and expansion of airport capacity.  There will be a delay in planned increase in petrol taxes too, and when it comes to transport, the money speaks: holding down rail fares will cost £130 million, while delaying the petrol tax rise will cost the government £1 billion.
  • Worst of all by a considerable distance is the new £250 million subsidy for “energy intensive industries”.  The short-sightedness of subsidising the country’s dirtiest industries while cutting the Feed-in Tariff and investment in renewable energy is staggering. It’s a betrayal of the ‘polluter pays’ principle, shifting the external costs of dirty industry to the taxpayer. And it doesn’t even make economic sense either – by dis-incentivising energy efficiency, this subsidy actually makes British business less competitive in a world of rising energy prices. What’s particularly disappointing about it is that it’s not just environmentally illiterate like the motoring measures are – it’s deliberately designed to neuter carbon reduction obligations, and Osborne practically says so in his statement. It’s couched in the language of ‘British jobs’, but this is a deeply regressive policy that stinks of corporate lobbying and institutionalised climate skepticism.

So what do we make of all this? Well, there are some creative ideas in the Chancellor’s bag. There are some labour policies in disguise, and there are some really ugly ideas that privilege economic growth over people and planet. Ultimately however, I’m struck by how little the government can really do. In the face of the Eurozone, rising commodity prices, and the ongoing frailty of the banks, the best we can do is contingency planning and improving our resilience to shocks. Osborne may have promised to “see Britain through the debt storm”, but then it was only last October that he declared that he had “taken Britain out of the financial danger zone“. Events, as Harold MacMillan famously said, are the greatest challenge to a politician, and those are out of our hands.

1 comment

    Total national income is 12,000B in rounded number
    That is individual and corporate.
    Newt talks 15-18 Flat & Perry a 20% Flat

    ALL Taxable Income is 12,000

    20% of 12,000=2400
    15% of 12,000=1800

    Budget is 3800

    I am wrong or they are wrong. What am I missing? Old dumb.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: