Plan A has failed. It’s been replaced by plan A 1.5, with go-faster stripes. The current economic outlook for Britain is deeply alarming but if the Euro falls, it looks cataclysmic. The only clear message from the Chancellor’s autumn statement is that the Coalition has no idea how to escape the vortex. And Labour, for all their crowing, have little to say and even less authority on which to say it. This “budget for growth” looks more a model for sustained unrest.
The economy is expected to grow by just 0.7% next year, down from previous estimates of 2.5% in March – a figure so absurd it could only pass without laughter in these extraordinary times. The sensible warned at the time that gravity could not be reversed, that the private sector could not fill the gaps carved into the state. And so it hasn’t.
Responding to the failure of their ‘shock-doctrine’ approach to deficit management, the Coalition’s budget falls into no-man’s land: too doctrinaire to consider any real solutions, but wily enough to know the Plan A game is up. The end result is a bleak picture indeed: the government will borrow £158bn more than originally planned.
By 2017, an estimated 710,000 public sector jobs will have been cut, an upward revision of 310,000 on earlier figures. For the lucky survivors their two year pay freeze will stumble into a two year period with pay rises capped to 1% while inflation flies along at 5%. For those families bearing the brunt of Osborne’s “restraint”, they may well ask as to the restraint of Britain’s top directors, who just received wage increases of 49%.
Bearing much of the burden will again be the poor; changes to working and child tax credits are expected to see another 100,000 children dropping below the poverty line. Over 5m families will lose from the child tax changes, and over 2m will be hit by changes to both credits. The Resolution Foundation expects wages in 2016 to be no higher than in 2001. We are set to lose not just a decade but also a generation.
Softening the blow, Osborne’s handouts are meagre: fare increases to be held at inflation plus 1%, the planned 3p rise in fuel duty discarded and yet the £5bn infrastructure project will now be funded by additional cuts elsewhere. What the Coalition refuses to acknowledge is that the primary evil facing Britain today is the collapse of demand, something inextricably tied to the purchasing power of labour. Wealth must be pushed downwards, at the point of earning rather than taxation, to where it is most productive and equitable. Instead, the Coalition’s supply-side crusade continues to shower gifts on business, employers and, of course, the banks.
Workers right continue to come under pressure as employment legislation looks set for “reform”, the ease of hiring and firing staff will likely be increased while salary protections for those moving from public to private are to be curtailed. For those at the coal-face of Cameron’s “Big Serco” revolution things are not looking rosy.
Bank balance sheets are still the primary target for “growth” – Quantitative Easing of up to £275bn has been authorised following the £70bn already handed over to financial institutions. Considered wrongly as “new money”, QE is in fact everyone’s money; our individual donations are just to be levied via inflation. While graciously received in the City, it’s difficult to see the public interest: it’s not the tightness of credit preventing loans, it’s a lack of willing borrowers. In the face of continental and domestic implosion the public, like the banks, are paying off debts, not looking to take on new ones. The only difference is the public will be paying their debts with their own money.
At the heart of the picture is the fantasy of an economy struggling to meet demand. Unleashed from overbearing regulations companies will race to invest and employ, while the public, crushed and fearful, are clamouring for holiday loans and new cars if only credit were a little looser. New Labour’s “Fantasy Island” is alive and well. There is no Keynesian stimulus on the horizon, just a reshuffling of the existing deckchairs.
Tax avoidance and evasion merits not a single mention in the budget, despite costing the nation an estimated £70bn a year; approximately half the current deficit. Indeed, rather than targeting the culprits it is set to cut 12,000 jobs at HMRC, something that won’t cut the deficit but add to it as the state’s ability to tax is eroded. Bank bonuses, astronomical executive pay (completely unrelated to performance), Britain’s intricate web of tax havens and a failed financial model: none of these merit action, they are not up for discussion. There is plenty of wealth there if there is the conviction and desire to take it, but it would require the sort of fundamental shifts that Westminster, and its paymasters, refuse to contemplate. Parliament and the public need an opposition that identifies these facts rather than running scared of the markets and the press, something Labour and Miliband have so far failed to do. Intertwined with our economic predicament is a crisis of representation at both national and supranational level that is now threatening to boil over.
Across the Channel, events in Europe have the potential to make the budget almost entirely irrelevant, a point starkly made by Paul Goodman on Conservative Home. If the Euro falls and sovereign and bank defaults ripple across the continent then all bets will be off. The damage to Britain, both fiscally and socially, will be unprecedented in recent times. British banks, heavily exposed to Europe, will collapse while the bailout required would not even be tenable, let alone desirable. Yet still today good money – and fantasy money - chases after bad, the unfillable hole at the heart of finance. All the while top pay soars as the majority watch their living standards plummet. Today’s mass strike action may turn out to be trivial in comparison to what is to come. The question is, what happens next?