Today’s mini-budget statement is really Osborne’s last chance to fix Britain’s dire economy before the election. The IFS has just predicted that austerity will last till at least 2018 – a lost decade like Japan. The re-balancing of the economy, the’March of the Makers’, which Osborne lauded has simply not happened. Neither the government’s Funding for Lending programme to get money flowing to industry nor getting pension funds to underwrite infrastructure projects has produced any significant stimulus at all, and anyway the corporate sector continues to sit on a colossal cash surplus of £800bn but without investing because the real problem continues to be the lack of aggregate demand.
The whole purpose of the austerity trauma was whatever the cost to bring down the nation’s debt, yet it is actually rising because the steady decline in Exchequer receipts through falling incomes exceeds the rate of cutting the deficit. And now to cap it all, the one flagship left in the Osborne armoury, the maintenance of Britain’s triple A credit status, is seriously under threat from a downgrade by the rating agency Moody’s if Britain falls deeper into recession – just as fears of a descent into a triple-dip rfecession begin to take hold. At that poing the Osborne strategy is dead, kaput.
What Osborne is likely to attempt on Wednesday is a big boost to investment and construction. Investment has fallen dramatically since the pre-crash peak in the first quarter of 2008 by 19%, including business investment 10% down. Manufacturing has declined by 8%, but construction much more by 18%. Industry wants time-limited 100% capital allowances for 2 years to jump-start investment, while in the case of construction the aim will be to get pension funds and sovereign wealth funds investing in Britain’s infrastructure, underpinned by the government’s guarantee. But even if these materialise at all, they are phantom billions that are not part of the public budget at all, but simply conjured out of thin air by government guarantees.
Industry’s justified gripe is that Osborne has cut public capital spending (on which the private sector depends for up to 40% of its activity) too hard while the government’s current outlays have continued growing. We will however again be assured on Wednesday that Osborne will do anything to get growth, even though the one thing which will produce growth is the one thing he won’t do. His neoliberal hang-up is that the exclusively for the private sector and the State should keep out. William Jennings, the US Presidential candidate declared famously in 1896 that America was being crucified on a cross of gold. Britain today is being crucified on a cross of ideology.