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The central issue of this election is a mystery wrapped in an enigma

osborne red facedThe key issue of this election,behind all the superficial flashy giveaways, is paying off the deficit. It still stands this year at £92bn when Osborne pledged in 2010 it would be £37bn or below – a discrepancy of £55bn, not exactly a minor slippage.

So how exactly, after 5 years in which Osborne has tried every trick in the book to try to get the deficit down to near-zero, are we supposed to believe that it will now be squashed down to zero within the next 3 years (Tories) or the next 5 years (Labour)?

Considering the importance of this issue and how it drastically affects every other element of the government’s budget, it is astonishing how quiet both the main parties have kept about how the hitherto glacial pace of deficit reduction is suddenly transformed into a mad gallop to cut it by £92bn in just 3-5 years. On past performance that looks to be impossible – and it is.

The government’s Red Book at the last budget spells out a declining set of figures from £92bn to £5bn over a 5-year period, including a cut of £37bn in one single year, without any explanation whatsoever of how it is to be accomplished. It is hard to reject the conclusion that the figures have been made up to suit a predetermined political target. If so, an immense confidence trick is being perpetrated on the British people, and it will all end in tears once again in 5 years time as promises solemnly given are seen to be betrayed. There are two ways out of this dilemma:

One is that cuts are being planned on a far greater scale than has so far been admitted, but even if that were the case it is doubtful that cuts on that enormous scale would be politically tenable: they would produce riots and unrest on a scale that would kibosh the plans.

The second alternative is that very generous economic growth assumptions have been written into the plans. It may be forecast that growth of 2-2.5% will prevail every year till 2020, and that the usual 38-40% of this is purloined by the government’s tax take to pay off the deficit.

First, this is a far too optimistic assumption given the state of the Eurozone, the UK’s main export area, and the IMF’s warning about a long-term lowering of international growth rates. But second, leaving that aside, the amount that would accrue to government under these most sanguine predictions would be less than £60bn over the next 5-year period, i.e. only two-thirds of what is required. The truth however is that such accountancy forecasts are simply fantasy when in the current year the UK had growth of 2.8%, yet the deficit in this year didn’t reduce at all.

So that leads back to the original question: how can the deficit of £92bn be reduced to zero in the next 5 years. The answer is, it can’t be, and there will be a lot of red faces.

6 Comments

  1. swatantra says:

    Economics is not an exact science, never was and never will be. Maths is, as are Physics and Chemistry.

    1. swatantra says:

      … a lot of economics is guesswork, and I never believe economic forecasts from whatever source.

  2. Robert says:

    So that leads back to the original question: how can the deficit of £92bn be reduced to zero in the next 5 years. The answer is, it can’t be, and there will be a lot of red faces.

    End welfare

  3. Barry Ewart says:

    “It can’t be” – according to Ann Pettifor here big business is sat on £800b – take a chunk of this through windfall taxes – it is our expropriated wealth really. Collect taxes rich – billions, have a land tax – billions, have a substantial EC financial transaction tax (much higher than piddling 0.1% Robin Hood Tax). Eliminate debt at a stroke and have billions in reserve – meet UK, EC and Global Need. This global doing good would engender a Global Feel Good Factor – “Yes we can.”

    1. Robert says:

      Well of course labour have not come out with any of that, and to day Miliband has stated we are heading for the center and if the Tories want to come with us then come on.

      Two days ago he was telling us he was to the left now he to the center the bloke is desperate to get voters and it looks like labour is back to where it was under Blair.

      I do not think labour have any clear plan or do the Tories, I think it all about cuts to those who cannot fight back, so far.

      Blue Tories Blue labour giving Osborne a red face at least shows he has blood.

  4. Tim W says:

    A lot of the “austerity” of the last few years has been simply hot air, for the Coalition has put spending up every year. They strangled what growth was available in their early years by putting up VAT. Those are the 2 key reasons for the deficit not coming down.
    We have been very lucky that the Eurozone has not so far imploded, but that will not hold forever. When that happens the real cuts will have to start.

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