We need to change the conversation by getting rid of purposeless fiscal rules
Osborne has now missed two of the three targets he imposed on himself less than a year ago.This has been the gist of the media coverage on this week’s budget – well, that and the sugar tax.
But this misses the point. Osborne has put himself, and our economy, in a straitjacket. Instead of slapping him on the wrists we should be insisting that he changes the rules.
If rules are made to broken, Osborne has shown his rebellious side. Last year he introduced a new fiscal mandate promising that the debt-to-GDP ratio would fall every year of the Parliament, that welfare spending would be capped and that he would run a surplus by the end of the Parliament.
The OBR has put a spanner in the works this week with forecasts showing he will breach the welfare cap in every year through 2020 and that this year the debt-to-GDP ratio will actually rise. His final rule will only be met through some hocus pocus with tax receipts.
These missed targets put more pressure on Osborne to cut – something that many of us who want the economy and society to flourish oppose. Conversely, by pointing out that Osborne has missed targets we are strengthening his argument for having the rules in the first place.
His reasoning for more cuts is that it will make us more prepared for the ‘storm clouds gathering’. This factually incorrect. Our inability to deal with the crisis was because of our over-exposure to the financial sector. This has not been addressed at all in the intervening eight years.
We need to change the conversation.
Firstly, we need to get rid of these fiscal rules. John McDonnell has offered something better – one that gives us more flexibility while ensuring better managed public finances. Osborne would do well to take note.
Secondly, we must continue to remind people that it was the banks – not public spending – that caused the crash. We are letting the real culprits off the hook. Many of the changes that the Vickers Report on banking reform recommended have been watered down. In many areas the report self-consciously didn’t go as far as it should have, because its proposals were intended to be adopted in full. But despite that, it was in part a lobbying victory for the big banks because it was diluted even further.
Whenever I explain the facts to people they look at me in disbelief. It is uncomfortable to know you have been duped by economic propaganda.
We are collectively letting ourselves be distracted from the real lesson here.
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