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The Budget: a vehicle for growth with the engine missing

As is usually the case, this was a very political Budget. It will change the economic future of this country hardly at all. The purpose of this Budget was camouflage to distract attention from the Great Axe that is about to fall within the next two weeks and to give the impression that Britain has now been launched on an escalator of growth. If only.

The truth is the opposite. Growth forecasts have already been repeatedly downgraded even before the country is pounded by continuing heavy hits from unprecedented benefit cuts and spending cuts. The same further marking down of the growth figures is expected to pull down the estimate for 2011 to less than 1.9%, well below the level needed to prevent unemployment rising sharply. Worse, the really big flaw in this Budget is that you cannot generate growth by giving incentives to the private sector if the demand to prompt the investment isn’t there. And it isn’t, because the one thing that’s anathema to the Osborne Tories is the use of the public sector to kick-start the recovery. The Budget is a vehicle for growth with the engine missing.

Osborne was of course hemmed in by inflation at 4.4% (RPI actually at 5.5%) and real incomes falling, the biggest monthly deficit on record in the public finances (£10bn), and a stagglation likely to worsen quickly with spending cuts and possibly rising interest rates.  Faced with this lack of manoeuvre, he could either pursue a steady-as-she-goes strategy (which is likely to be steadily downwards) or opt for the only real escape route through a major public sector driven jobs and growth policy funded by a much bigger crackdown on tax avoidance/evasion and a large temporary surcharge on the top 3% of the population (roughly the richest million persons in the UK). The £10bn that could thus be raised could create half a million jobs, regenerate the country’s housing, infrastructure improvement and green digital development, and kickstart confidence in the private sector to turnaround private investment. Ideological hostility to any direct role for the public sector in the recovery forced him to choose the former course, to the detriment of Britain.

Against the background of the hovering benefit and spending cuts to come, this is an eminently forgettable Budget. A whole series of minor titbits have been strewed across the landscape as political gestures with miniscule economic significance. The cut in fuel duty will be swamped within days or weeks by the tidal wave of market forces, the £1bn cut in tax avoidance (if achieved) is a drop in the bucket of UK tax dodging estimated at £120bn a year, and additional apprenticeships for young people will be of limited value if the jobs market is shrinking.

(An earlier version of this blog appeared yesterday)

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