George Osborne’s performance during the Autumn Statement was, to be fair, pretty impressive.
We’d had ‘leaks’ suggesting it would consist of ‘eye-catching’ spending on selected capital projects combined with re-hashing of money already committed.
The change to stamp duty left everyone wrong-footed. Giving away £800 million in tax is no small thing and he hopes it will lead to a fillip in the housing market in the next few months, translating into votes for his party next May’s general election.
If the stamp duty announcement was meant to be ‘candy floss’ to create distraction from the less palatable parts of the autumn statement it worked; temporarily. In the days since, though, we realise Osborne’s statement points to a truly dreadful vista for the future.
Osborne intends to cut public spending to 35 per cent by the end of the next parliament. Influential commentators, not least the independent Office for Budget Responsibility (OBR), contend that this level of reduction will create a state of public service funded by government comparable to the 1930s. Paul Johnson, head of the independent Institute for Fiscal Studies believes that the proposed cuts would need to be “on a colossal scale” for the chancellor to achieve his objective of budget surplus by 2020.
Services we expect as standard by our local authorities will be provided by private operators; something that has already occurred. However, how much will we pay? For instance, whilst many of us regard paying for refuse collection as a worthwhile expense, what about those who do not - possibly because they simply cannot afford the cost? Local authorities such as Birmingham and Solihull will in future struggle to provide even statutory services. And what about policing? How will we feel about having fewer police officers on our streets? As is the case in other countries we may be expected to pay private security to protect our homes. What would the great civic reformer and statesman Joseph Chamberlain, who did so much in pursuit of improvement in Birmingham, make of Conservative spending plans for the next parliament?
George Osborne’s Autumn Statement was overtly political and aimed to demonstrate the economy is safer in his hands than under Ed Balls and who is widely portrayed in the press as profligate. But how much trust can we put in Osborne’s future spending plans? Remember, he promised in May 2010 that by 2015 austerity would result in the deficit falling to £40 billion. That it is heading towards £100 billion may be seen as failure. Though Osborne can cite a number of reasons for the increase, critics believe his obsession with implementing austerity to rapidly was mistaken. In the last two years Osborne has effectively adopted former Labour Chancellor Alistair Darling’s approach set out before the last election. As many assert, it was too late as the damage was already done. However, we are being told that after the next election the really nasty medicine will start again.
Reducing unemployment is an achievement that Osborne cites in defence of his strategy. However, there is a downside to the fact that unemployment at six per cent (two million) is at its lowest level since records began in 1972. Though creating 1,000 new jobs each day should be a major triumph they are poor substitutes for the full-time superannuated posts that have been lost in the public sector. It’s believed that only one in 40 of jobs created in the last six years are full-time and permanent and are frequently based on short-term ‘zero hours’ contracts. Another shift has been the increase in self-employment which, according to TUC, accounts for one in ten new jobs.
The OBR acknowledges the shortfall in tax and national insurance contributions, some £8 billion, is due to “subdued earnings” ie wages not keeping up with inflation coupled with the new jobs being poorly remunerated. Crucially, Osborne predicts the loss of one million public sector jobs in the next parliament. Though he believes that they will be ‘replaced’ by two million new jobs there is concern. Many are asking how Osborne’s prediction of budget surplus will be achieved especially as the tax and NI shortfall is predicted to rise to over £15 billion by 2020.
Wage stagnation has demonstrably made us poorer than before the global financial crisis. Though you wouldn’t believe it from the crowds flocking to towns and shopping centres in the normal Christmas frenzy, many families are struggling. Osborne states that wages will soon start to rise faster than inflation. But will this be sufficient to achieve the levels of spending assumed by the OBR forecast for the period 2015-20? Amazingly, it is believed Britons will add £360 billion to ‘unsecured lending’ and that the consequence of vastly increased consumption will help to reduce the budget deficit.
So there you have it. What is proposed is that structural debt we collectively owe will be reduced by increasing personal debt. Add in the reality that interest rates will eventually rise and things start to look even grimmer. Osborne’s remedy will continue the trend seen in this parliament of shifting wealth from the poor to those who already possess it in abundance. Is that what you really want George?
Despite all the talk about rebalancing the economy, we have not managed to achieve this laudable objective. Developing manufacturing industry to make goods that can be sold abroad ensures demand for well-paid skilled labour and would improve the state of the economy. We need more of it. The trouble is, our continuing skills problem coupled with relatively low capital investment in equipment and research and development continues to undermine our productive capability. It’s no surprise that among G7 countries only Italy has a lower productivity than us and we have an awfully long way to go to match the industrial prowess of Germany.
Christmas is almost here when we are exhorted to remember the importance of peace and goodwill. We should remember that many who are much worse off than ourselves and give generously. Whatever may be claimed otherwise, austerity has increased the number of people forced to depend on charity. Food banks are standardly used by hundreds of thousands, including those in work, to feed families. Increased consumer spending, something Osborne’s predictions rely on, will surely exacerbate this phenomenon and that is not welcome. Reducing the budget deficit remains a priority. Equally so is the need to invest in skills and innovation and in reducing inequality.
The IMF’s Christine Lagarde speaking at the World Economic Forum last year stated: “Excessive inequality is corrosive to growth. It is corrosive to society.” Tinkering with stamp duty may give a short-term fillip to property values and the ‘feelgood’ factor. Let’s not forget that property contributed to the current problems. Instead, what is really needed by whichever government takes office next May is reduction in the deficit based on improving job prospects in industries producing goods of real value.
* Dr Steven McCabe is director of research degrees at Birmingham City University
