The Budget of Failure.

Yesterday (16th March 2016) George Osborne delivered his 6th Budget as Chancellor of the Exchequer. This budget, Mr Osborne claimed, was for:

…the “next generation” ….

I can’t see what there was for young people in it.Perhaps he was referring to the lifetime ISAs announcement, giving under-40s Government help to save money for retirement or to buy first homes. Speaking as  someone in the demographic of the ‘under 40s’ this isnot much use given we’ve got nothing extra to save by virtue of the cost of living and are mostly under-employed.

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“Zero-hours” contracts have reached record high – 800,000

Low wages and unsteady work are the real problems. (Yes, unemployment has fallen but those figures buoyed by low wage, insecure work & nil hours contracts which have increased by 800,000). People my age are more likely to be paying off student loan and credit card debts than have money to put aside. But cheers anyway Gideon… A quick summary of the rest of the budget:

  • A new sugar tax on the soft drinks industry to be introduced in two years’ time, raising £520m a year to be spent on doubling funding for primary school sport in England. A nice big, sugar free dead-cat, good nonetheless,  but a distraction from the worst elements of this budget…

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Current evidence does not prove that academies raise standards overall or for disadvantaged children – Graham Stuart MP, chairman, Education Committee 

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Diagram 1 – The Office for Budget Responsibility had had to revise down its GDP growth forecasts
  • The Office for Budget Responsibility dropped its forecasts for the UK for every year until 2020, implying that our national income will be around £33bn smaller than previously promised by the end of the decade. Growth forecast to be 2% in 2016, down from 2.4% in November’s Autumn Statement (See above Diagram 1). GDP predicted to grow 2.2% and 2.1% in 2017 and 2018, down from 2.4% and 2.5% forecast four months ago. Outlook for global economy is materially weaker and UK not immune to slowdown elsewhere. Sajid Javid stated on Channel 4 News it is the global economy & factors outside the UK – the dangerous cocktail Osborne keeps referring to & that the storm clouds were gathering… (unlike in 2007/08 when it was definately all Labour’s fault….)

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    How “important” the deficit is (depending on who is in government) according to the BBC.

  • Further cuts of £3.5bn by 2020, with spending as a share of GDP set to fall to 36.9%. Debt targets to be missed. Forecast debt as a share of GDP revised up in each of the next five years to 82.6% in 2016-17 and 81.3%, 79.9%, 77.2% and 74.7% in subsequent years. Do listen to this interview Osborne did on Radio4 where he is grilled by John Humphrys. Not often Osborne is grilled like this, good on John Humphrys! See Laura Kuenssberg THIS is what journalists do!

 

 

Lots of very wealthy people will be delighted with this massive giveaway.

  • £700m for flood defences schemes, including projects in York, Leeds, Calder Valley, Carlisle and across Cumbria … essentially having to spend more in the long run to cover his cuts in the previous parliament which meant the recent floods was exacerbated. Tory short-termism…cut now, pay later …
  • Borrowing forecasts revised up to £55.5bn (+£5.6bn), £38.8bn (+£14bn) and £21.4bn (+16.8bn) in 2016-7, 2017-8 and 2018-9 respectively.

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    Diagram 2

A report by The Resolution Foundation in response to the budget details that (by virtue of his YUGGE tax breaks & smaller growth) falling tax receipts means there will be a significant deterioration in public finances outlook, creating a £55 billion fiscal hole (Diagram 2). Weaker than expected tax revenues will significantly slow the path back to a surplus. Further the Chancellor is accommodating the rise in borrowing for most of the Parliament £83bn breaking his own absurd fiscal rule. In the face of this £55bn deterioration in the underlying public finances the Chancellor is choosing to tolerate extra borrowing over the next few years, indeed to increase it with giveaways including income tax cuts.

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Osborne has failed to meet his promise to cut debt as a share of GDP this year. Osborne had already broken one of the fiscal rules he set himself last July: a cap on welfare spending had to be abandoned after he reversed a plan to cut £4.4bn in tax credits.  It is simply a budget of failure. Jeremy Corbyn summed it up perfectly in his response (a powerful & damning indictment of Osborne’s 6 years of austerity):

It is a recovery built on sand and a Budget of failure. The Chancellor has failed on the budget deficit, failed on debt, failed on investment, failed on productivity, failed on the trade deficit, failed on the welfare cap and failed to tackle inequality in this country. Today he has announced that growth is revised down last year, this year and every year he has forecast. Business investment is revised down and Government investment is revised down. It is a very good thing that the Chancellor is blaming the last Government—he was the Chancellor in the last Government. This Budget has unfairness at its very core, paid for by those who can least afford it. The Chancellor could not have made his priorities clearer. While half a million people with disabilities are losing over £1 billion in personal independence payments, corporation tax is being cut and billions handed out in tax cuts to the very wealthy.

Osborne has borrowed more in the last 5 years than labour did in 13 years. In 2010, the total national debt was approximately £800billion. Since Cameron, Osborne and the rest of the ‘Bullingdon Club’ took office the debt has more than doubled. It now stands in the region of over £1.5 trillion.  £1,500,000,000,000 and growing. Osborne’s ‘recovery’ is based on low wages, insecure work, private debt & asset inflation. It is a frothy coffee recovery (to quote Will Self).  Our economic growth is abysmal & productivity plummeting. This has been exacerbated by limited government spending & public investment – a direct result of explicit policies by George Osborne. He has ignored for six years the International Monetary Fund (IMF):

… boosting investment can underpin growth, helping to generate tax revenues. Increased public infrastructure investment is one of the few remaining policy levers to support growth. Increased public infrastructure investment raises output in the short term by boosting demand and in the long term by raising the economy’s productive capacity.

Public infrastructure investment raises output in the short term by boosting demand and in the long term by raising the economy’s productive capacity. This is not what Osborne has done, he has done the opposite and ignored entirely the pressing need for additional infrastructure to support economic development.  For all his rhetoric, there has been systematic under-investment  over the last 6 years. The chickens are coming home to roost given his economic incompetence and his laissez faire attitude to investment to stimulate growth.

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Further,  through his budget Osborne is engaging in a multibillion back door raid on the NHS and other areas of Government spending despite pledging to protect them from cuts. Technical changes to the way public sector pensions are valued mean that departments face contributing more to the overall cost from 2019 – effectively saving the Treasury around £2 billion a year. The reduction in the discount rate – the theoretical return on investments – will hit all unfunded schemes in the public sector, including those for the NHS, the army, police, teachers and civil servants. This is separate from the extra £3.5 billion of cuts Mr Osborne demanded of departments by 2020.

The Chancellor has once again promised to protect the headline amount of funding that goes to schools and health – but he is loading more pressure on to these services via the back door – Jonathan Clifton, of the Institute for Public Policy Research (ippr) think-tank. 

One of the major points in the budget was the announcement that the threshold at which people pay 40% income tax will rise from £42,385 now to £45,000 in April 2017. Tax-free personal allowance, the point at which people pay income tax, to rise from £11,000 in April 2016 to £11,500 in April 2017.

Most shocking (or to not so shocking given the government’s recent spate of attacks on the disabled) are the one-third reduction to the Employment Support Allowance (ESA). Cuts to disability benefits to support tax cuts for the better off. The cuts are the latest in a string of reforms, including the change from disability living allowance to PIP, to proposed changes to employment support allowance and the cuts to social care that have affected disabled people. The Equalities and Human Rights Commission (EHCR) says the proposed cuts will disproportionately affect disabled people, widen inequalities and undermine the UK’s human rights obligations:

The Government states that it wishes to remove the ‘incentives’ that ‘discourage claimants with potential to work from making the most of opportunities to help them move closer to the labour markets . However, for those people unable to work because of disability, lowering the rate of benefits available will not encourage them to move closer to the labour market. It will, however, lower their standard of living. –  Welfare Reform and Work Bill Report Stage: Clauses 11, 12, 13, and 14 House of Lords 27 January 2016 

Osborne is funding his tax cuts & giveaway by placing the burden on the most vulnerable in our society. He will use the £130 slashed from 600,000 disabled people’s  Personal Independence Payment (PIP) support to raise the threshold at which people start paying 40p tax (For middle-income earners, Mr Osborne has raised the 40 per cent threshold for the first time in years). The most powerful line delivered in Jeremy Corbyns response  to the budget was on this very issue and made the Chancellor visibly squirm in his seat.

I simply ask the chancellor this: If he can finance the giveaways he has put in his budget to different sectors, why can’t he fund the need for dignity for disabled people in this country? – Jeremy Corbyn, MP, Leader of the Labour Party 

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Disabled charities have described the plans, which is expected to hit an additional 400,000 people who will see their weekly PIP payments fall from an enhanced £82 to the standard £55, as devastating. They say cuts to benefits helping people to lead independent lives is a false economy. Osborne  is instigating cuts are against some of society’s most vulnerable people.

It’s a false economy to make cuts in the very areas that enable people to get their lives on track. We profoundly believe that disabled people have got so much to contribute to British society. But with the cuts to benefits, social care cuts and now the tighter regulation to PIP, we are really concerned it will jeopardise independent living for disabled people, leaving them socially isolated.- Liz Sayce, chief executive of Disability Rights UK

The Chancellor is failing the poor & the vulnerable and has failed on his fiscal targets. And even his changes to tax allowance will benefit the wealthiest more than average & low income earners. David Kilshaw, private client services partner at EY, stated:

The rise in the personal allowance will reduce the tax bill for those paying a higher rate, saving them £200. The increase in the higher-rate threshold alone will save the higher-rate taxpayer £300. For a middle-earner who receives £1,000 of other income from property or from trading, there could be a further saving of £400.

Those earning £45,000 or more are getting the biggest income boost, while the poorest, as usual, are getting nothing but a metaphorical slap in the face from the Budget announcements. Over 80p in every £1 spent on raising thresholds and allowances will go to the top half of households; more than 30p will go to the UK’s richest 10%. 

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Diagram 3

The Institute for Fiscal Studies (IFS) has savaged Osborne’s budget, criticizing odd tax policies and the rhetorical nonsense. Analysis by the IFS shows that the richest 20 per cent will do best out of the budget,  both in cash terms and as a proportion of their income (see Diagram 4).

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Diagram 4 – The biggest gainers are those towards the top of the income distribution.

If the [Office for Budget Responsibility] is right about that we should all be worried. This will lead to lower wages and living standards, not just lower tax revenues for the Treasury …His chances of having a surplus in 2019-20 are only just the right side of 50/50. – Paul Johnson, director of the IFS

Osborne cannot disguise the bad news concerning an economy he has been running for years, blaming his failures on the rapidly darkening outlook of the world economy : China, commodity markets ect. But his policy choices of the last six years leave the UK’s economy more vulnerable. Without productivity growth in the long term Britain’s economic situation will not improve. Osborne has if anything stifled growth because of austerity 12801445_10153293082366104_9101476517146554629_n& his restraint in spending to invest. By committing to achieve a public finance surplus every year in ‘normal’ economic times, the government has ruled out borrowing to fund public infrastructure. The exception is investments through the Private Finance Initiative (PFI), which do not affect the headline public finance numbers. Since the financial crisis, there has been less private finance available to invest in either public–private or private infrastructure projects. At the same time, direct public investment has also decreased. The call for more investment has also been made by, among others, the OECD, which says that the UK government has spent less on infrastructure than most of its peers (See Diagrams 5 & 6 below).

Osborne has done is  cut the state down, blinkered by his Thatcherite perspective of the world. In his six years as chancellor he has matched, if not surpassed Nigel Lawson and Thatcher in terms of privatisation. The budget is Osborne’s was of ‘passing the buck’ for his failures. Osborne’s slashing has left Britain with few options when the next crash comes and failed his own tests. When it all comes tumbling down, who will he blame?

Any Labour chancellor who presented such a budget to the house would be laughed out of the chamber. – Guardian Editorial,  The Guardian view on the budget: a poorer country, a diminished chancellor

By Frederick Antonio Gallucci | International Law LLM | @gibblegbble

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6 thoughts on “The Budget of Failure.

  1. The more Osborne helps the big earners, the more they cheer him on in their expensive suits and fast cars and with their very articulate, strident, well-schooled voices. The more this happens the more the gullible public thinks he must be doing something right, and continues to go along with it. Is it just a matter of time until the message gets through that the public is being fleeced by a failed ideology that wrecks the economy and masks daylight robbery! Will those of us who think there is a better economic theory and a less morally bankrupt approach be able to bring about change through the ballot box? We are up against the entrenched establishment. Is there cause for optimism. Can we make change happen? This is a good start!

    Liked by 1 person

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