Tag Archives: Economic policy

Budget 2015: Britain’s fragile recovery is based on an act of political conjuring

March 18, 2015MusingsAnalysis, Article, Banking, Business, Economic policy, Economic recovery, George Osborne, Heather Stewart, Politics, Special supplement, The Guardian, UK newsdiana Stone

Economic miracle. No I don’t think so somehow. There might be some trouble brewing don’t you know.

This article titled “Budget 2015: Britain’s fragile recovery is based on an act of political conjuring” was written by Heather Stewart, for The Guardian on Wednesday 18th March 2015 20.11 UTC

George Osborne styled Britain as the “comeback country” in Wednesday’s budget. Yet the carefully crafted narrative, in which he plays the sombre statesman stewarding the economy back to calmer waters, barely disguises the nakedly political nature of many of his decisions — and the serious risks that remain.

First, Osborne has only been able to cut debt as a share of GDP this year – hitting a target he was expected to miss as recently as December – and promise to call a halt to austerity before the end of the next parliament, as a result of a two-stage act of political conjuring.

Instead of the five-year austerity drive he pencilled in as recently as December, he has now set public spending on what the independent Office for Budget Responsibility (OBR) called a “rollercoaster”.

The Treasury will now swing the axe more sharply than previously planned in 2016-17 and 2017-18, before switching back to deliver what the OBR calls “the biggest increase in real spending for a decade in 2019-20”.

It’s a boom-bust spending pattern for public services no Whitehall mandarin would deliberately plan — but it will help Osborne to ward off the accusation that he is on an ideological crusade to shrink the size of the state.

Second, the chancellor is counting on the proceeds of a pair of banking privatisations. He has announced plans to sell off a mountain of mortgages the government has owned since the bank bailouts, and a fresh batch of Lloyds Bank shares.

The handy £20bn proceeds – which, conveniently, he plans to pocket by the end of 2015 – will make no difference to the size of the public debt in the long term, because the state is losing out on the mortgage repayments and dividend income it would otherwise have received.

But critically, banking the income over the next 12 months allows the chancellor to fulfil his aim that debt would be falling as a share of GDP by 2015-16.

When it comes to the health of the economy, Osborne singled out international factors – not least the standoff between the combative Greek finance minister, Yanis Varoufakis, and his eurozone partners – as the key threats facing the economy.

Yet perhaps the largest question mark hanging over the future of Britain’s economy lies at home, in our woefully weak productivity record.

Rising productivity – the amount of output each worker produces – is the key to generating sustainable economic growth and higher living standards.

But while the UK economy has been creating jobs at the rate of more than 100,000 a quarter, allowing Osborne to claim that “Britain is working”, the fact is these workers are producing far less – and so being paid much less generously – than economists would predict.

In this latest set of forecasts, the OBR has scaled back its expectations for productivity growth; but it still expects a recovery to something like normal growth rates. And no one knows whether that will yet prove over-optimistic. As the OBR puts it: “Since it is difficult to explain the abrupt fall and persistent weakness of productivity in recent years, it is also hard to judge when or if productivity growth will return to its historical average”.

The balance of growth – between saving and consumption, imports and exports, debt-fuelled property speculation and sustainable long-term investment – is also far from what the chancellor hoped for. The OBR says the current account deficit for 2014 – probably the best measure of whether Britain can “pay its way in the world”, as Osborne likes to say – is likely to be at its highest level since the 1830s.

And two more inconvenient facts mar Osborne’s claim to have put Britain back on the road to recovery with the “long-term economic plan” that even the most disinterested voter must by now be bored of hearing about.

First, most of the modest upgrade to the Wednesday’s OBR forecasts for Britain’s long-term growth potential resulted not from the government’s economic management; not even from falling oil prices, which should boost consumers’ living standards and cut the cost of production for many businesses. Instead, it came from higher-than-expected inward migration, which boosts the size of the workforce.

“We now assume that net migration flows will tend towards 165,000 in the long term,” it says. That adds 0.6% to potential growth – the speed at which it can grow without stoking inflation – over the next five years.

Second, the recovery only really got off the ground in 2012, when the chancellor made a deliberate decision to ease off on the pace of austerity. We may finally have reached the sunlit uplands of the “comeback country”; but we might have got here sooner.

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David Clapson’s awful death was the result of grotesque government policies

September 9, 2014MusingsArticle, Benefits, Comment, Conservatives, Economic policy, Frances Ryan, Opinion, Politics, Poverty, Social exclusion, Society, UK newsdiana Stone

Re-blogging this because its important. This kind of thing can happen to anybody at anytime…

This article titled “David Clapson’s awful death was the result of grotesque government policies” was written by Frances Ryan, for theguardian.com on Tuesday 9th September 2014 08.24 UTC

The coroner said that when David Clapson died he had no food in his stomach. Clapson’s benefits had been stopped as a result of missing one meeting at the jobcentre. He was diabetic, and without the £71.70 a week from his jobseeker’s allowance he couldn’t afford to eat or put credit on his electricity card to keep the fridge where he kept his insulin working. Three weeks later Clapson died from diabetic ketoacidosis, caused by a severe lack of insulin. A pile of CVs was found next to his body.

I’ll resist calling Clapson’s death a tragedy. Tragedy suggests a one-off incident, a rarity that couldn’t be prevented. What was done to Clapson – and it was done, not something that simply happened – is a particularly horrific example of what has, almost silently, turned into a widespread crisis. More than a million people in this country have had their benefits stopped over the past year. Sanctions against chronically ill and disabled people have risen by 580% in a year. This is a system out of control.

A petition for an inquiry into benefit sanctions, started by Clapson’s sister, Gill Thompson, is now on the verge of its 200,000th signature. This Thursday there will be a day of action against benefit sanctions across the country. If inspiration is required, you need look no further than the latest Department for Work and Pensions pilot scheme launched last week. The unemployed are set to have their benefits stopped if they don’t sign in at a jobcentre in the morning and spend the whole day there, every day. Breach the rules once and you’ll lose four weeks’ worth of benefits; twice and you won’t be able to feed your kids for three months.

Yes, some reasons for sanctions are almost laughable: going to a job interview rather than a meeting at the jobcentre that it clashes with; not completing an assessment because you had a heart attack during it. But let’s not convince ourselves the rest are credible – punishment sensibly bestowed on the scrounging unemployed. A government that deems it a success to stop the money someone needs to eat is a government of the grotesque.

Sanctions are a product of an attitude towards benefit claimants that says they are not people struggling to find work but suspects: lazy, stupid and in need of a DWP-kick to get them out of bed. The lazy are going hungry. Eight in 10 Trussell Trust food banks report that benefit sanctions are causing more people to need emergency food parcels. This, I suppose, is what Conservatives call motivation.

It doesn’t matter that sanctions are disproportionately hitting the most vulnerable. Nor that the DWP’s own commissioned report says that they are being imposed in such a way that vulnerable people often don’t understand what is happening to them, and are left uninformed of the hardship payments to which they are entitled. Six out of 10 employment and support allowance (ESA) claimants who have had their benefits stopped have a mental-health condition or learning difficulty. Are these the chosen victims of austerity now? By definition of being in receipt of ESA, many will struggle to do things such as be punctual for meetings or complete work placements with strangers in environments they don’t know. It is setting people up to fail and then punishing them for it.

Sanctions are not an anomaly. Rather, they are emblematic of the wider Tory record on welfare: one of incompetence and, at best, indifference. The work programme fails to find work for 95% of disabled people, but enforced, unpaid labour or loss of benefits is the DWP’s answer. More than a quarter of a million people are still waiting for PIP, the benefit needed to help cover the extra costs of disability. Seven hundred thousand people have been left waiting for an ESA assessment. Locking people out of their rightful benefits is becoming a theme for this government. The consequences are human; the response from the government is inhumane.

Clapson had only left his last job to care for his elderly mum, and before that had worked for 29 years. On the day he died he had £3.44 to his name and six tea bags, a tin of soup and an out-of-date can of sardines in his kitchen cupboards. Benefit sanctions are aimed at ending the “something for nothing” culture, as the DWP’s press release brags. I vote for ending the demonisation of the unemployed, disabled and poor.

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Osborne wants to take us back to 1948. Time to look forward instead

December 8, 2013MusingsArticle, Austerity, Comment, Economic growth (GDP), Economic policy, Economic recovery, Economics, George Osborne, International Monetary Fund (IMF), Main section, Nick Clegg, Opinion, Politics, The Observer, Will Huttondiana Stone

This article titled “Osborne wants to take us back to 1948. Time to look forward instead” was written by Will Hutton, for The Observer on Sunday 8th December 2013 06.20 UTC

It is an incidental sentence, but it brought me up short. By 2018, general government consumption will be proportionally no larger than it was in 1948. So declared the Office for Budget Responsibility in its report accompanying the autumn statement. The work of three generations in building the sinews of a state that support systems of health, transport, education, environment, policing, science and the rest is to be summarily withdrawn over the next five years. It is a landmark moment in our national life.

Next year the coalition – deputy prime minister Nick Clegg supporting Cameron and Osborne – is aiming to legislate that the reduction of the deficit on this scale and speed should be a statutory obligation. Stunningly – apart from some allegedly effective new measures against tax avoidance, and asking non-residents to pay capital-gains tax on the sale of their homes – all of the work is to be done by cutting spending, by a cumulative £75bn in ways yet to be specified.

The IMF, after assessing the experience of 107 countries between 1980 and 2012, recommends that, after a credit-crunch deficit, there should be a balance between tax increases and spending reductions. In Osborne-land over the next five years more than 95% is to come from spending cuts – a global first in self-harm.

I worried in my column last week that the principal risk of the recovery – induced by Osborne actually introducing measures contrary to those he is supposed to believe in – was that his apparent economic success would seduce him into actively damaging prescriptions. So it has come to pass. The OBR shares my view that all we are witnessing is a cyclical snapback of the economy driven by a recovery of demand. This should not be the excuse to shrug off the calamity of irrational total austerity, and hack away at the state with abandon. But sure enough that is what is now promised. It is a deliberate challenge to the Labour party, but importantly also to the Liberal Democrats. I am not sure that, once the enormity of what is proposed is grasped by his party, Clegg will be able to persuade it to sign up to such a dark vision. He had to take the coalition agreement to a special conference of party members before he could formally agree to it. Already key figures aware of what is proposed, I’m led to believe, feel the whole party, as in May 2010, must be involved in another decision of parallel importance. I don’t think he can win any such vote. And what future would there be for the coalition – or indeed him – if it did come to that? Osborne’s calculation is that he and his party are on the right side of the argument. A jihad against government, backed by a rampant centre-right press, is capturing the popular mood. For alongside the proposal to create a 1948-scale state is another highly toxic proposal, at least for any Lib Dem worth their salt: to introduce a cap of just over £100bn on welfare spending, excluding pensions and the jobseeker’s allowance. Any last element of Beveridgean underpinning to the British approach of supporting the least well-off is to be removed. All there will be is a limited pot into which the needs of Britain’s disadvantaged will be shoe-horned. No Lib Dem can support this, surely.

The story is that this is all in support of “hard-working” people, as the Treasury declares on its webpage – bizarrely reducing a great state institution into a mouthpiece of Tory central office. The assumption is that the public and social institutions built up over the last 70 years are unnecessary and held in the same contempt by “hard-working” people as a highly ideological Tory party. It is a bet that only politicians insulated from the reality across Britain could make.

Some of the intense pressures on government departments are already surfacing. Leaked papers from the Department for Business show its cumulative spending cuts are at least £1.6bn, with more unspecified for 2018/19. Two proposals are privately under active consideration: one is to turn £350m of grants to students from less well-off households into loans, which I doubt will be cheered by their “hard-working” parents. The other is to cut the science budget. Indeed any ambition to lift research and development spending from its current 1.8% of GDP to the 3% benchmark spent by the world’s best can be abandoned. We are to stay in the second or even third division.

It will be the same across the board. From flood defences to class sizes, from the capabilities of our regulators to the effectiveness of our police, from assistance to the elderly or the scale of our performing arts – everything is under threat. And this is unrelieved by any attempt to look for tax revenue to mitigate the impact, as every other country does and is advised to do. Instead, more asset disposals are proposed. The east coast mainline, generating £209m of surplus on £700m turnover, will be sold despite its fabulous returns to the taxpayer. The same will take place with EuroStar. To give up such great financial returns along with the benefits of ownership is daft. The new owners will demand even higher returns on their investment, with only enfeebled regulators left to protect “hard-working” people from being skinned. Ownership matters.

As the IMF argues, the knock-on depressive effects of spending cuts on such a scale is much higher than a more balanced approach involving tax increases, especially when the banking system is still palpably weak. The next 18 months will see a clawback of some of the ground lost over the last six years. There could be a substantive follow-through for the rest of the decade. Instead growth will be much more subdued as the next wave of the jihad kicks in, all to create a 1948-scale state and a giant leap backwards to a 19th-century system of poverty relief. Is this the civilisation, and wider economy, in which “hard working” people want to live and work – and where so much risk is transferred from social institutions to the individual.

The autumn statement is a seminal event. The obligation is on the Labour party, and the Lib Dems, to make the counter case. Great politicians must have vision, and back it with argument and evidence. Miliband and his shadow cabinet must be brave enough to set out what kind of state and social settlement they want, and how best to lift the stagnating productivity of British workers, which is at the root of the “cost-of-living crisis”. Lib Dems need to ask themselves if they really want to be allies in creating the regressive, punitive civilisation Cameron and Osborne have in mind. Back to 1948? Or onward to something smarter, fairer and more generous? It’s decision time.

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