Latest post on Left Futures

Osborne checkmated by his own austerity

CheckmatePolitics has a curious way of coming back to haunt politicians in a way they never intended or expected. Osborne is a case in point. The whole thrust of his austerity strategy, as he repeatedly told us, was to eliminate the structural deficit in this Parliament. On that basis he predicted in 2010 that the deficit would be down to £40bn this year. It is actually around £100bn. Worse, the deficit is no longer shrinking at all, it is rising. Alasdair Darling’s two expansionary budgets in 2009-10 set in motion economic stimulus which reduced the budget deficit from its peak of £165bn (at 2013-4 prices) to £115bn, a cut of no less than £50bn in two years. Osborne’s austerity budgets then kicked in and the deficit actually increased to £121bn in 2012-3, before falling to £98bn last year. This year it is set to rise again to either just below or just above £100bn. The whole deficit reduction programme, after all the impoverishment and pain it has inflicted, has gone pear-shaped. It is worth asking why.

It’s because Osborne has fallen into his own trap. The government has forced hundreds of thousands of people, either through ‘sanctioning’ (i.e. depriving them of their benefit entitlement often for trivial infringement of the rules) or through draconian work capability assessments, to take jobs which are very low-paid, insecure, part-time, or zero hours contracts. As a result, the employment growth has been concentrated in the very low-pay sectors of the economy where a large proportion of income fall below the £10,000 personal tax-free allowance. Consequently income tax payments to the government are falling far short of expectations: the Budget forecast was that they would rise by 5%, but they have actually grown at an annual rate of only 1.8%. As a result the government’s tax take has been much lower than expected, which drives up the deficit.

So the central question for Osborne as he delivers his Autumn Statement is: With average incomes suffering the biggest fall since Victorian times, productivity almost the lowest in the OECD, business investment still flat below pre-crash levels, the deficit in traded goods now the biggest in British history, and now to cap it all, the budget deficit actually rising because of the fall in tax receipts, what is the rationale for continuing with austerity when the consequences are themselves now actually causing the deficit to rise? I shall be demanding an answer to that question from Osborne.

Image Copyright: ulkan120 / 123RF Stock Photo

One Comment

  1. Barry Ewart says:

    Good points Michael and of course cheap labour also restricts the ability of working people to purchase commodities and the levels of credit and personal debt may be unsustainable. Further poverty pay also means more people needing tax credits unless they are unfortunate enough to be migrant workers. So the Neo-Liberals have painted themselves into a corner and I agree with Wolfgang Streeck writing in the excellent New Left Review that quantitative easing has only put off the financial crisis for a few years. So perhaps we need to get our share of the wealth back be it via Winfall Taxes on Big Business and taxing the rich and as Ann Pettifor suggests here get it into productive investment which I would argue needs to be long term and we should do all these things with our sister parties around the World to meet global need. It’s like we’ve sent Osborne to the bar to get us a pint with our money and he comes back with a half and no change! He is now asking us to send him to the bar again!

© 2020 Left Futures | Powered by WordPress | theme originated from PrimePress by Ravi Varma