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Osborne’s boasts were lies – his was not a budget for a prosperous Britain

Osborne no cuts collage by CounterfireThe truth finally came out. Osborne claimed that the deficit was being cut this year when in fact that is only due to the exceptional delaying of tax payments till the end of the fiscal year by the super-rich in order to take advantage of the reduction in the top income tax rate to 45%. Without that, which will never be repeated, the deficit would have risen this year, as on present policies it will rise in future years.

He promised “the biggest increase in real spending for a decade in 2019-20″, but that’s only because of a boom-bust roller coaster after massive spending cuts in 2016-18, which any Whitehall mandarin will tell him is a crazy, not to say utterly irresponsible, way to manage public services.

He claimed that the national debt would begin to fall in 2019-20, but that is only because he’s planning to pocket the £20bn windfall from selling off the proceeds from the bank privatisations, not because the fundamentals of debt inflation have in any way improved.

He complimented himself on a nationwide recovery spread across the whole country. The truth is that London and the South-East continue to pull away from the rest of the country, and manufacturing and construction are still lagging badly behind the finance sector.

He claimed that Britain stood tall and was now beginning to pay its way in the world. The truth is the precise opposite. The OBR is predicting that in 2014 Britain had its biggest current account deficit since 1845, nearly 200 years ago.

He claimed that with rising real wages – albeit by only a fraction and only because the slump in the oil price, prosperity was now returning to British households. The truth is, average real wages are still nearly 8% below their pre-crash levels while at the top, inequality marches on relentlessly. The ratio between the average FTSE chief executive’s remuneration and median pay in those same companies is now more that 140:1, and according to the Sunday Times Rich List the richest 1,000 people in the UK have actually doubled their wealth in the last 5 years from a staggering £250bn to a scarcely imaginable £500bn!

The conclusion from all this is unavoidable: the real fundamental problems of the economy have not been redressed at all. First, we are investing far too little. Current UK investment is now just 14% of GDP, and if the 11.5% devoted to replacement after depreciation is discounted, net new UK investment is a pathetic 2.5%. For comparison, the current world level of investment is 24%, and for China it’s 46%. Just as seriously, UK public sector net investment has been chopped in half as a share of GDP since 2008-9, even though the government has an unprecedented opportunity to borrow at sub-zero real rates of interest. No industrialised economy can remotely remain competitive on a record like this.

Second, productivity, which is the real key to growth, has collapsed. Real GDP per head has been stagnant for a decade, while GDP per hour is now about 15% below the pre-crisis trend. ~All future growth now depends on a productivity resurgence, yet at present there is absolutely no sign of it.

Third, the UK continues to run up debts at an unsustainable rate. Osborne continues to depend far too heavily on asset inflation in the housing market to fuel consumer demand which is the wrong way to reflate the economy, and is only used because the right way – via exports and investment – has notoriously failed to materialise. Perversely Osborne is now even looking to consumers to increase their spending as a means to prop u demand, even though household debt now exceeds £2 trillions, and that debt overhang could prove extremely dangerous if interest rates rise.

This is not a budget for a prosperous Britain. It’s the last gasp of a chancellor who has imposed near-permanent austerity on the British people while missing by miles the economic targets for recovery he so confidently set himself 5 years ago.

Image credit: Osborne no cuts collage by Counterfire

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