The soon to be outgoing Chancellor’s formal admission that his surplus target no longer exists heralds the end of his overriding economic philosophy
After six years of fruitlessly chasing a target he was destined to never even come close to reaching, George Osborne’s aim of reaching a national budget surplus came to an end yesterday. All it took was for Britain to provisionally pledge to leave the European Union. Who knew it would be quite so simple in the end? You just need to set the country down a path of changing its place in the world for decades to come, and you can force even the most stubborn of politicians to eventually see sense.
For running a surplus, and austerity by extension, are widely derided and discredited concepts. George Osborne never grasped this, in the age of anti-intellectualism where we’re all ‘sick of hearing from experts’, the voices of the entire economist community weren’t good enough for him. He has blamed his decision on the consequences of Brexit where a fairly sharp economic slowdown is the least severe of the expected short term outcomes, thus making his already (highly dubious) tight projections for 2020 entirely void. But for all that he might protest that it is only circumstances beyond his personal control that have led him to this decision, it really is a move that he should have made independently long ago. His reasoning was shaky on the following grounds:
When the Tories came into power (as an effective minority government) in 2010, the economy had been in the midst of a severe recession as a result of the global financial crash, but was showing signs of recovery – indeed there were shoots of GDP growth as 2009 turned to 2010. Osborne choked off this recovery by pursuing an agenda based on brutal austerity and an all encompassing desire to eliminate the deficit (this would later be extended to a wish to run a surplus – after, it might be noted, that Osborne missed his initial ‘elimination’ target in one Parliament by an absolutely huge margin and borrowed more than all Labour governments in history put together). The issue with this approach is that sharp cuts to spending do nothing other than halt growth, decrease market and consumer confidence, stall the economy so little of a positive nature can happen and at best, we experience stagnation. Accordingly, we saw numerous quarters of negative GDP growth between 2010 and 2013, at which point when seeing that austerity was failing, the vice-like grip was finally released and the economy eventually allowed to breathe. The obsession behind reducing national debt – which never even remotely approached historic peaks even at the height of the global economic crisis – to the detriment of every other aspect of economic policy played a huge part in wasted years for the British economy; when much of Europe was busy rebuilding, we were mired in the slowest recovery since the 18th century. For contrast, see Mark Carney’s promise this week to issue £250bn of quantitative easing should the need arise in the event of an economic crash following Brexit. The stock and current markets stabilised from their initial post-referendum tailspin. Think about it logically – would you have more confidence in an economy which says that it has the answers and the funds available should the worst happen, or one which says we’re potless come what may for the foreseeable and everyone’s going to have to do much more with far less?
Running a surplus when the economy is booming is again, fundamentally bad economics. It has the effect of boosting national savings to the counterpoint of contracting the economy – the private sector has to find some way of financing this public surplus, most commonly by taking on bank debt. So while the Government gets richer (to no obvious end), everyone else because more indebted. It’s a central flaw outlined in most basic, conventional economic teachings. Rather than follow such conventions, the Cameron/Osborne alliance preferred to deal in trite phrases such as ‘fixing the roof while the sun’s shining’ or that they ‘wouldn’t max out the nation’s credit card’. Economics can’t be cheapened down to terrible soundbites. Economies don’t work like household budgets. A better analogy than Gideon’s mythical leaky/non-leaky roof for what the Tories actually proposed is that if the nation owned a theoretical collective car, we should sell that now to anyone offering cash up front as we could use the money to pay off a chunk of our ultra-low interest, ultra-long term mortgage. Then get a taxi to work and back every single day.
I should add that I don’t possess any formal qualifications in Economics. Like so much in terms of politics, I’ve simply aimed to educate myself as well as possible so that I can make informed decisions and form reasoned opinions. I don’t understand everything, but I know enough. If I understand basic economics such as the above, it should be reasonable to expect that the Chancellor of the Exchequer understands it as well. George Osborne never showed any grasp of the most basic of concepts involved in running his department – which is a fitting epitaph for the Cameron years given the multiple shambles in running key offices such as Education, Health and Welfare.
In any event, it seems almost certain that Osborne’s days in No 11 are very shortly to come to an end. With his key promise now broken and being inextricably tied to the outgoing Prime Minister, whoever takes over the running of the country will surely look for a new Chancellor. It is absolutely crucial that whoever the new duo may be, they provide us with more hope than Cameron and Osborne ever did between 2010 and 2016.
Far too many people in Britain have been cut off and marginalised – this Government has had nothing at all to say or offer to people who aren’t prospering. A large section of the Leave vote came from areas where such a situation was rife; where people felt that things couldn’t possibly get any worse for them as it was going, so they may as well vote for change of some sort. As much as this might in the long run have been turkeys voting for Christmas, theoretical macroeconomic debate doesn’t carry much weight to people struggling to keep themselves afloat, this is the here and now and change, however flimsy, was offered and they took it. This cannot continue. If the modern Conservative Party genuinely does believe in the “One Nation” principle then no longer can ordinary people be abandoned.
It’s practically an inevitability that the economy is set for challenging times in the coming years, providing that we proceed with withdrawal from the EU. We cannot afford another situation mirroring the early coalition years, there cannot be more deliberate stagnation and managed decline. If we are to be more self-reliant as a country – as, by definition, would have to be the case in a future where we are no longer part of the single market – more help is required from the Government along the way. Economic growth, innovation and prosperity don’t just magically appear from nowhere, the conditions have to be there to foster those things. If we’re to believe the fairytale of Britain being stronger outside the EU, then Britain has to do everything in its power to promote its independent growth. Cutting everything back to the bone – or probably now the bone marrow, given everything that’s already been cut since 2010 – and relying on long-disproven trickle down economics will never be the answer.
As it stands, irrespective of who wins their leadership contest, the Tories would still have to be heavy favourites to win a General Election, whether it were called ahead of schedule or in its proposed date of 2020. Labour are riven by internal crisis and a central divide between its MPs and its members, the Lib Dems would surely have too much to do from a historic low base to come anywhere near a return to power sharing. It’s fanciful to suggest that UKIP who have never come up with any coherent domestic policy could come close to Westminster influence, our voting system precludes the Greens from ever getting in on the party. But should the Tories win, then we need a complete sea change in their approach to the economy. The era of austerity, where next to no-one believes they can improve their lot and one of the key legacies of the Cameron years is food banks and mean-spirited welfare sanctions, has to be at an end. Osborneomics has been a complete failure: an economic plan focused on hope rather than fear is the only way forward.