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Osborne’s hard truths for 2014 are likely to rebound on him

Osborne’s latest proposal to enforce a further £12bn social security cuts in addition to the £25bn already carried through or in the pipeline is not only grotesquely harsh, worse still it won’t work. His suggested mechanisms to secure such enormous savings have already been shown to fall laughably short of the objective: means-testing the 15,000 or so people with incomes of £60-70,000 who live in social housing might save £50m a year, and stripping housing benefit from young people under 25, once parents in this group and others like victims of domestic violence are excluded, might save another £50m – which together might take him 0.8% of the way towards his target; so where is the remaining 99.2% to come from?

But that’s still not the main issue. The real point is that redoubling the masochism when the policy is patently not working is insane. It is reducing the deficit (allegedly the whole purpose) only at a glacial pace, it is destroying the essential component of demand, it is holding back growth, it is extending the longest recession in modern history far into the distance, and long before it could possibly achieve its objective it will provoke a political explosion that will derail the policy for good.

For all Osborne’s blood, sweat and tears, what will his obsession secure? He says he’s already reduced the deficit by a third since 2010. That’s untrue: the reduction by a third at the end of 3010 was the result of Alistair Darling’s stimulus of the economy in his 2009-10 budgets. Osborne’s policies only began to take effect from the start of 2011, and since that point the deficit has come down from £118bn to just £115bn in 2012 and then according to latest estimates to only £111bn in 2013. At that rate the deficit will not be cleared till 2030 – a lost two decades just like Japan. And can one believe a word Osborne says about future prospects when the deficit this year turns out to be almost double what he predicted in 2010?

There is a yet still more fundamental objection to this madness: what is the point of eliminating the structural deficit even if it could be achieved (which it almost certainly can’t)? After compressing the economy for the best part of 2 decades. where is the demand to come from to drive the growth from the flattened hulk, especially if key export markets like the Eurozone have been following identical policies of relentless squeeze without end? This is back to the old-fashioned balanced budgeting of Montague Norman of the 1920s which was the precursor to the General Strike of 1926, the financial collapse of 1929-31, and the decade of abject poverty in the 1930s. To pursue such catastrophically misguided policies once is bad enough, but to repeat them all over again is unforgiveable – indeed repeating the same things again but expecting a different result is one sign of insanity.

One Comment

  1. eric clyne says:

    Osborne is not concerned with objective reality. He is concerned with how his efforts are perceived by the market, by Tory core support and by swing voters in marginals.

    That is why IN FACT that in terms of overall government budget the cuts have been TINY. His aim is to madden the left and whip up support for the right. He is more concerned about the election than the realities of the economy or the effect of the cuts.

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