The Budget did nothing to address ‘secular stagnation’ – yet still we dance to Osborne’s tune

George Osborne should be delighted so many people are lining up to criticise his policies. It disguises the fact he doesn't have any


On the one hand, George Osborne’s final budget before the election demonstrates that budgets really matter. As snappy as Ed Miliband’s response was, the Labour opposition cannot possibly compete with this unique platform for the government of the day to show voters, in a tangible way, what ‘five more years’ of Conservative government might do for them (I think the Liberal Democrat influence can be discounted at this stage – they seem to have entirely given up the ghost).

As such, Osborne once again turned to some of his favourite tricks. The housing market will be stoked by a new ISA for first-time buyers, through which the government will help people save for a deposit. The housing market (particularly buy-to-let is also likely to be the destination of the cash people will get from being able to sell their annuities, the latest absurd twist in the coalition’s pensions liberation fantasy).

The income tax personal allowance will rise again – presented as a tax cut for low-earners, but mostly benefiting well-off households. There was more good tax news for the already affluent: the threshold for the 40p income tax band will rise above inflation.

There were also measures designed to further Osborne’s Northern Powerhouse narrative, chiefly allowing Greater Manchester councils to retain more of their business rates revenue. And he’s once again watered down austerity, with some clever fiddling with the public finances, helped by the knock-in impact of very low inflation (which is actually a bad thing).

In short, Osborne has introduced an array of measures designed to both curry favour among his own supporters and take the sting out of Labour attack lines.

In the process, he has, in my view, continued to play fast and loose with the British economy, refusing to address or even intensifying the kind of problems that caused the financial crisis and subsequent severe recession.

My warning about yet another boost to the housing market proved rather prescient, if I do say so myself. But it was hardly a difficult one to call, since Osborne has repeatedly turned to the housing market to fuel consumption, by both artificially boosting the wealth of already affluent home-owners, or just making us all feel a bit richer.

At the risk of getting side-tracked, I want to make this point absolutely clear: the UK has an acute housing availability crisis. Most parts of the country do not have a housing affordability crisis. Help to Buy, the recent stamp duty reforms and today’s measures are solving a problem that does not exist for most people. Of course, it soon will exist, as these policies increasingly become self-fulfilling and push up house prices everywhere. As Evan Davis tweeted:

‘Giving money to home buyers without building any more homes just means you push up the price of homes (helping elderly home owners).’

(I should point out that he added ‘Discuss’ at the end of the tweet, presumably to retain a sense of political neutrality. But his prognosis is clear.)

On the other hand, today perhaps proved that budgets hardly matter at all. After all, most of the measures are merely minor modifications to existing practice (and any giveaways will probably be largely reversed, one way or another, early in the next Parliament, even if the Conservatives win the election), so will not in themselves cause economic catastrophe. As the Office for Budget Responsibility casually acknowledged today:

The coalition government’s policy decisions in this budget are not expected to have a material impact on the economy.

This reality brings to mind the current debate among economic commentators around the concept of secular stagnation. It refers to a chronic deficiency in demand, manifest globally as well as in most individual economies. This in turn leads to limited incentives for private investment, which in turn weakens demand further. And so on. Growth only happens in bubbles, and will not substantively create economic value. Secular stagnation was present pre-crisis, but concealed by the role of private debt in maintaining demand.

In short, again, the British economy is clearly at the epicentre of a worldwide economic depression. It’s a very plausible account, one that is no doubt shared among economic policy elites, including Osborne, even if they are usually loathe to acknowledge publicly the extent of the malaise.

One of the central mantras of the secular stagnation perspective, however, is that politicians’ hands are tied. For all the parliamentary showboating, the measures announced today will not make any substantive difference to our economy, because secular stagnation is so devastating precisely because it has rendered both fiscal and monetary instruments largely impotent. To be more precise, there are certain things that policy-makers have to do, whether they like it or not (such as historically low interest rates and facilitating even greater levels of consumer debt). We are in a constant state of crisis management with little scope for a long-term strategy.

The underpinning imaginary of this concept is one shared by the true-believing neoliberals: that the constitutive structures of the economy are impermeable to collective action through the organs of the state. This does not mean that the crisis is not real – it certainly is – but the issue is what we can do about it. On this account, the state is rendered as a set of technocratic modifiers which, at the moment, the economy is largely insensitive to. We are simply waiting for the tide to turn.

Yet herein lies the real significance of the Budget and similar fiscal and monetary policy events: they discipline us into accepting this fate. Politics is recast as a contest between one set of technocratic modifications and a slightly different set, while those in the know, like the proponents of secular stagnation, know that none of it really matters.

Osborne should be delighted that so many people, as I have done, line up to criticise his policies, because it helps to disguise the fact that he does not really have any.

Dr Craig Berry is deputy director of Sheffield Political Economy Research Institute (SPERI)

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6 Responses to “The Budget did nothing to address ‘secular stagnation’ – yet still we dance to Osborne’s tune”

  1. terryec

    I was startled that his fiscal plan for the next 5 years is Austerity for 4 years and a relaxing of the reins in the last year, pretty much as he has done this Parliament and similar to every Tory Government since and including when Thatcher was PM the reason I was startled is he admitted it without saying why obviously. he is deceiving the public that he only ever gives when a General Election is in the offing

  2. Realist

    You are an idiot of the first degree. Go and get a job and see what looney statements you make hurt the economy

  3. Guest

    No. Other than the rather banal insult, your grasp of grammar/sentence structure seems flimsy at best…

  4. Leon Wolfeson’re startled…why?

  5. madasafish

    Any writer who starts an article with a claim that Osborne has no policies is not credible.

    Osborne has changed policies: every Chancellor does.. but to claim he has none is the mark of a polemicist and a pretty lousy one at that.

    It’s ironic: SPERI for whom Dr Berry is Director has aims..”to develop new ways of thinking..”

    Not much thinking evident here.


    And “The underpinning imaginary of this concept is one shared by the true-believing neoliberals: that the constitutive structures of the economy are impermeable to collective action through the organs of the state”

    Who writes in such a convoluted fashion? An academic out of touch with reality I suggest..

  6. Guest

    So only your “gimmie” is valid and “in touch” with your leeching off the British. Right.

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