To fill a Budget with populist gimmicks while wholly ignoring the economic fundamentals that are remorselessly driving this country into a semi-permanent stagnation is to degrade the high office of Chancellor. The home loans scheme has more than a whiff of sub-prime about it, luring those without the means to buy a house they cannot afford and thereby fuelling a housing bubble. The child care voucher is limited to where both parents are working and offers five times more to the richest fifth than the poorest fifth. And the penny off a pint of beer does not do much to compensate for the 9% cut in real wages that the OBR now expects by 2015 compared with 2009.
All this populist flannel misses the point. The real point is the total abandonment of any serious attempt in the Budget to tackle the fundamental problems of a desperately ailing economy. The tragedy for the people of this country is that during this depression we have Herbert Hoover at the controls, when the whole country is crying out for a Franklin Roosevelt. The harshly unrelenting facts of Britain’s inexorable decline speak for themselves. The OBR has been forced to halve the growth prediction this year, which it made only three months ago, from 1.2% to 0.6%. The deficit reduction—the ostensible aim of the whole brutal austerity machine—is going into reverse. The deficit now expected in 2014 is £120 billion—twice what it was expected to be just three years ago. By the time of the election in 2015, the Government will have been forced to borrow an extra £250 billion more than was forecast in 2010. With the plans in the Budget, any hope of the Chancellor’s achieving a firm and sustainable recovery is simply delusional.
The heart of any Budget is its macro-economic strategy. Uniquely, in this Budget, there was no credible strategy. The Chancellor’s policy is still so destructive and the failure so massive that it is difficult to avoid the conclusion that the real objective is not deficit reduction, but to dismantle the public sector and shrink the state. One simply has to ask, “Why is the Chancellor so wilfully blind to an alternative?”
An alternative must start from recognising that when the household and private sectors are deleveraging, there cannot be a recovery if the public sector does the same. It starts from recognising also that monetary policy alone—throwing £375 billion of quantitative easing at the banks, dropping interest rates to the floor and letting the exchange rate fall by 25%—cannot by itself produce growth; or, as Mark Carney would put it, not much “escape velocity” there. An alternative also starts from accepting that until the collapse in aggregate demand is tackled, there will be no recovery.
How can that be engineered and paid for? There has to be, initially, a public sector-driven investment programme in house building, infrastructure, energy, transport and low-carbon technology until such time as the private sector can take over. That can be paid for by borrowing £30 billion at the dirt-cheap interest rate of 0.5%, or £150 million a year, which would rapidly pay for itself by taking back into employment 1 million workers, whom it is currently costing the country £10 billion to keep on the dole. However, this does not have to involve any public borrowing at all. The nationalised banks, RBS and Lloyds, could be instructed to prioritise lending to key infrastructure manufacturing projects, or the ultra-rich—the 14,000 millionaires who are about to get a £2,000 a week tax give-away—could be capital gains taxed on the £155 billion of gains they have made over the last three years, according to
. Or, instead of hosing down the banks with another huge tranche of quantitative easing, the money could be diverted to direct investment in industry.