Shelving his surplus and 'Brexit budget' are a concession that hard times cuts are folly
Cracks are emerging in the government’s signal policy of a ‘long-term economic plan’, and of the post-crash economic consensus, in the wake of Britain’s vote to leave the EU.
Sold as a way to ‘clean up the mess’ left by the previous Labour government, which was falsely said to have caused the financial crash of 2007/8 by its profligacy, the Tory policy of cutting our way to growth has failed in its own terms.
Public debt stands at £1.6 trillion, or 83 per cent of GDP, private companies are still hoarding billions rather than investing (even more so after Brexit), and growth only showed signs of life after George Osborne eased up on austerity in 2012, at the urging of the IMF.
Indeed, the IMF has since joined a swelling chorus of voices who say the supposed blessings of Thatcherite economics have fuelled the growth of inequality.
Meanwhile, the social cost has been enormous, with public services falling apart, real wages frozen at their pre-crash levels, child poverty rising and hundreds of thousands relying on emergency food.
As of two weeks ago, Osborne was proposing more of the same, with his ‘Brexit Budget’ of greater slashing in response to further economic woes post-Brexit.
This would have been consistent with his arguments over the six years since the crash. Recession? Free the wealth-creators, and shrink the state!
But instead the chancellor has quietly ditched this ‘punishment budget’ following the referendum result, and shelved his target of a budget surplus, both in order to counter the Brexit blues.
Osborne said, rather coyly:
‘The government must provide fiscal credibility, so we will continue to be tough on the deficit, but we must be realistic about achieving a surplus by the end of this decade.’
This recognition that squeezing the public sector in hard times is folly signals a real and welcome concession in the post-crash economic argument – but while the old is dying, the new is yet to be born.
What should the government do now to repair and improve the economy? Prem Sikka offers some progressive ideas in this piece for Left Foot Forward published on Monday.
Is there potential for a broad coalition on a new approach? The ground does appear to be shifting.
Patrick Hosking, financial editor for the Times, (a newspaper which urged deeper and wider cuts last year), said this week that ‘deficit-cutting has to be put on hold’, and criticised Osborne’s plan to turn Britain into an offshore tax haven by cutting corporation tax to 15 per cent.
He instead called for government investment in ‘digger-ready state infrastructure projects’, saying we should ‘take advantage of the fabulously favourable climate in the financial markets’, since ‘the government can borrow more cheaply than at any time in three centuries’.
‘There is no shortage of credible capital spending projects. Without a fiscal boost, a probable mild recession later this year could easily turn into something much darker — with far worse implications for the long-term public finances.’
David Blanchflower, economist and Labour Party advisor, goes further and claims victory for the Keynesians.
Writing in the Guardian yesterday, he said: ‘This is the end of the disastrous experiment that was austerity, which was an ignominious failure that I opposed from the outset.’
He goes on:
‘When a negative shock comes John Maynard Keynes taught us that fiscal and monetary policy has to work together to provide stimulus.
That worked incredibly successfully in 2009 as governments threw the economic kitchen sink at the recession.
Growth spurted only to be slowed by austerity in 2010. The same is needed this time. All hands to the pumps. Austerity is dead. At last.’
This seems a tad optimistic. Osborne and the Tories won’t stop worrying and love the state any time soon.
But the arguments for austerity are potentially on the ropes, panting and looking dazed.
If the organised Left has an alternative ‘economic plan’ to neoliberal orthodoxy, now would be the time make their case.
Adam Barnett is staff writer for Left Foot Forward. Follow him on Twitter @AdamBarnett13Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.