Osborne policies a 'spectacular failure', says NEF

By Simon Barrow
December 4, 2014

Chancellor George Osborne is trying his best to spin his way out of trouble on the failures of austerity economics to deliver sustainable, widespread recovery and reduce debt.

In the midst of his Autumn Statement, vague on many points, there was the warning of further, eye-watering cuts to welfare and social security to come, and the premise of a significantly shrinking public purse – even though the debt problem is not primarily there, but in financial, household and other corporate debt. This is something the media barely ever points out, accepting the standard (but wrong) line that government spending alone is to blame.

The issue with public spending, of course, is where it is and isn't going. Investment, needed to stimulate economic activity to pay down debt and eventually reduce the deficit, is still below 2008 levels. Meanwhile, billions are going into support for working and non-working families kept on low wages subsidised by the taxpayer, excluded from the market because 'growth' is asset-led rather than productively based, or condemned to the insecurity of temporary, part-time or freelance activity – thus the gap between official jobs figures and the harmful fall in tax receipts.

A grossly unequal, low wage, asset heavy, carbon-based, financially speculative economy is not working properly – and it is the most economically and physically vulnerable who are paying the price. "We're all in this together" is easy and deceitful rhetoric from a cabinet of multi-millionaires. There is no hardship for the wealthy.

Meanwhile, writing in Britain's newest national paper. The National, published in post-referendum Scotland (http://www.thenational.scot), the senior economist at the New Economics Foundation (http://www.neweconomics.org), James Meadway, charts the coalition government's "spectacular failure" in its attempts to reduce the deficit.

On his NEF blog, James summarises the key issues in five crisp points:

"First, George Osborne has spectacularly missed his original deficit target. The June 2010 forecast for the deficit (the gap between government taxes and government spending) was £40 billion. Today, it is £91 billion. In four years, Osborne has borrowed a colossal £517 billion.

"Second, the deficit target has been missed largely because of falling wages. Despite economic growth over the last two years, most people’s real earnings have continued to fall. But if real earnings are falling, tax revenues will be pulled down, too. In addition, corporation tax revenues have fallen 14 per cent since 2010, helped along by cutting taxes.

"Third, the government’s own forecasts expect average real wages to continue to fall until 2017. Using the older Retail Prices Index (RPI) measure of inflation, the OBR does not expect average real wages to improve for another two years – despite continued economic growth.

"Fourth, tax and benefit changes mean the poorest 40 per cent lose out. Tucked away in the documents, the Treasury’s distributional analysis shows the poorest 40 per cent of Britons will lose out from tax and benefit changes (Chart 2.1, p20). For the poorest one-fifth, that means losing £441 a year.

"Fifth, we are less than halfway through the cuts, even on optimistic forecasts. To meet his deficit target, the OBR thinks that we still have 60 per cent of spending cuts to come (para 1.7). This is based on assuming sharp falls in debt interest, and rapid rises in tax revenues – neither of which are guaranteed. If all goes according to the plan, by 2019 we will have total public spending 'at its lowest level in 80 years'."

It's a grim picture. The difficulty is that the official opposition still accept the overall austerity narrative, with some modification ('fairer' cuts, a bit more investment) and are unwilling to tackle head-on the misrepresentation that the fallout from the crash of 2008 was somehow their fault alone, because it would open up demands for a change of direction, expose real failings (lack of regulation, pension raids, selling off a chunk of the gold reserves etc.), and go against what focus groups are telling Ed Balls and his cohorts "the people think".

This failure of nerve, including acceptance of coalition spending plans for the next parliament, will cost Labour dear in the long run. It is thinking from the edges – NEF, Prime Economics, the Green New Deal Group and others – which needs to be heard more loudly and clearly in order to redefine the terrain and reclaim the narrative.

* More from Ekklesia on the Autumn Statement here: http://www.ekklesia.co.uk/autumnstatement

* Previous budget analysis from Ekklesia: http://www.ekklesia.co.uk/budget

* Green New Deal Group: http://www.greennewdealgroup.org

* More on the upcoming General Election from Ekklesia here: http://www.ekklesia.co.uk/generalelection2015


© Simon Barrow is co-director of Ekklesia.

Although the views expressed in this article do not necessarily represent the views of Ekklesia, the article may reflect Ekklesia's values. If you use Ekklesia's news briefings please consider making a donation to sponsor Ekklesia's work here.