What can we expect from today’s budget?
This Budget reminds me of Bill Murray’s Groundhog Day.
I looked back at a blog I wrote on George Osborne's 2011 budget, and as well as feeling old, I feel repetitive.
Over the past seven years budget after budget has been deemed regressive. This budget looks to be no different, with an estimated 85% of the benefits of planned tax threshold changes going to the richest half of the population. The cumulative impact of seven years of regressive budgets has been dire for women and the most vulnerable in society.
Meanwhile the government has dropped even the pretence of fairness, scrapping HM Treasury’s distributional analysis that was published as an annex to the budget. For those of us interested in inequality, this decision renders the government alarmingly unaccountable. Although Osborne’s benchmark of ‘fairness,’ (i.e. making sure those with the ‘broadest shoulders bear the largest burden’) has been continually missed, government policies have not changed – and now we’re losing one of the ways to monitor the situation.
What has changed is where we are in the economic cycle. When the Coalition government was elected in 2010 our economy was still recovering from the financial crisis. As per the economic cycle, things did pick up, but the recovery was superficial and fuelled by more zero hour contracts and consumer debt.
"An economy built on sand will be unable to withstand the growing economic headwinds."
Now economic prospects are rather dim and an economy built on sand will be unable to withstand the growing economic headwinds. As such, the 2.5% growth in wages in 2015 is likely to be short-lived, with lead commentators predicting another bout of wage stagnation. The uncertainty over the EU is bound to create more uncertainty within the economy. Lower growth in the Eurozone, China and other emerging economies are inevitably affecting our exports.
"Osborne’s economic plan has failed."
While the Chancellor will boast that Britain is the fastest-growing economy among high-income countries and again insist that public spending cuts will lead to a stronger economy, the truth is that Osborne’s economic plan has failed. For one, he is far off his target for deficit reduction. An estimated £18 billion hole is opening up in the public finances – this is on top of missing multiple OBR deficit targets during his reign as Chancellor.
While announcements on infrastructure investments are likely to be the most promising outcome of today’s budget, hitching infrastructure and housing investment to pension fund managers and the private sector has failed to deliver at scale to date, and there is no reason this will change.
Austerity will need to be abandoned sooner or later. The OECD and the IMF have already signalled that they’ve gone off the idea. When the economic chips are down governments need to step in and the historically cheap borrowing costs makes a U-turn on austerity even more appealing. Osborne must be at least privately recognising this economic truth.
"How can our economy being doing well when our society is doing so badly?"
The public spending cuts go beyond wonky economic logic. The on-going dismantling of social infrastructure underscores the decoupling of the economy from society. Statements about a ‘strong economy’ alongside growing homelessness, queues at food banks, widening regional inequalities and an EU referendum demonstrating working class disenfranchisement presents an oxymoron. How can our economy being doing well when our society is doing so badly? People are primary, not secondary, to the economy. We need to judge Osborne’s budget with this in mind.