Osborne’s economic gamble
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Amid all the discussion of ‘severe cuts’, perhaps the most important fact to come out of today’s Comprehensive Spending Review is that total government spending in real terms will only be reduced by about 3% by 2014/15. According to the projections, this will reduce the share of GDP accounted for by public spending to roughly the same proportion as in 2006/07. Accordingly, the CSR is hardly a serious attempt to roll back the state.
The absence of significant overall cuts also implies that economic growth and the resulting increases in tax revenue are the main planks of George Osborne’s deficit reduction plan. Yet, as Tim Congdon reminded us recently, there are several reasons to be pessimistic about the medium-term growth prospects of the UK economy. For example, all of the following will inhibit output growth: an ageing population, slower labour market growth, more restrictive banking regulations and climate change policies which will raise energy prices and absorb hundreds of billions of pounds of capital investment. To date, the coalition government has done little to address these issues and the costs they impose on the wealth-creating private sector.
If GDP growth (and therefore tax revenues) proves to be significantly lower than projected, the budget deficit will remain at dangerous levels in 2014/15. Given the unreliability of economic forecasts, it would have been prudent for the Chancellor to make far deeper overall cuts than he announced today. He could then have reduced taxes with a condition that such a move would be reversed should the public spending cuts not be delivered. Of itself, tax cuts would have given a welcome boost to growth; and the possibility of their reversal if spending cuts were not delivered would have concentrated the minds of ministers.
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I find it surprising that there hasn’t been more fuss about the failure of the last Labour government to hold its Comprehensive Spending Review when it was originally scheduled. (There was some comment yesterday about the Labour government’s failure to hold a Defence Review.) That strikes me as grossly irresponsible.
And why isn’t the previous Prime Minister, and last-but-one Chancellor of the Exchequer, contributing to public discussion? Gordon Brown held a senior government position for thirteen years, and was surely the man ‘in charge’ of the Labour government’s financial and economic policy.
If he had been shot because he had made such a mess of it, I could understand his absence.
Why is it now being so easily accepted that he, still being an MP, just fails to turn up in the House of Commons (or at any rate to participate in debates)? He is still on the public payroll. Doesn’t he have a public duty to share his views?
I can understand Mr. Blair deciding to retire from the House of Commons after his long stint as Prime Minister. But Mr. Brown seems to be accepting an MP’s salary without most of an MP’s obligations. Acting as a glorified social worker for his constituents hardly seems enough, in view of his role in landing the government in its present financial mess.
Could he not be formally summoned to answer questions from the Treasury Select Committee?
And you would be one of these “experts” that didn’t see it all coming I suppose. And now I am supposed to feel reassured? Jesus, you guys take the biscuit.
@Jared Gaites – I’m not sure exactly what you mean by ‘it all’.
“I can understand Mr. Blair deciding to retire from the House of Commons after his long stint as Prime Minister. But Mr. Brown seems to be accepting an MP’s salary without most of an MP’s obligations”
Bizarrely, this seems to be fairly normal. John Major remained and MP until 2001 and made very few contributions; Ted Heath simply sulked on the backbenches; Churchill’s constituents were desperate to get rid of him in the 1960s but could not bring themselves to do it.
I imagine that there is an element of pride and an element of venality in it, but also that nobody wants to trigger a by-election, which are expensive and disruptive and the results of which would be a foregone conclusion.