The fatal flaw

I’m aware that most of you come here to read my amazingly witty and politically insightful blog posts. I’m also aware that at least one of you comes just to check my grammar and send me emails about it, but that’s another story. And I’m sure you glean bits of information about me from my writing. One or two of you may have even read the pitiful attempt at a light-hearted biog I wrote in the ‘about’ section of this blog.

What you probably don’t know is that I have a pretty good education. I did my Bachelor’s degree in Government and History and, more relevantly for this post, my master’s degree in Political Economy. Yes, I’ve studied the dark arts. I’m no Keynes or Krugman, but I know the difference between debt and deficit, avoidance and arbitrage. In short, I’m streets ahead of George Osborne.

So, with that in mind, I’ve been trying to work out how to comment on the “emergency” Budget without either boring you happy few to death or blowing up my blog writing machine. Anyway, this is my attempt.

Firstly, I’ve noticed a lot of rhetoric in newspaper columns and on tv about this being a thatcherite budget. It’s not. It’s nowhere near. Don’t get me wrong, I’m not saying it’s not as bad as a thatcherite budget. I’m saying it’s much worse. Cameron and Osborne went from being faux-progressive in opposition straight through thatcherite and way out the opposite side into uncharted economic territory. Even among all the devastation she caused, there’s no way Thatcher would have attacked welfare and public sector services so massively at the same time.

Osborne announced cuts of 25% to most government departments, though this now appears as though it will actually be 34%. That’s a massive amount of money and has never been done before. No budget has focussed so strongly on spending cuts without a sensible fiscal balancing of tax to go along with it.

And it’s not just any cuts is it, Dear Reader? It’s not even cuts across the board where everyone feels the pain? Of course it’s bloody not. A huge proportion of those cuts are coming from welfare payments to the poorer and poorest. A large number of families will see real reductions in their income before they start spending extra because of the VAT increase. This budget certainly wasn’t designed to make Osborne et al popular!

The VAT rise to 20% will be enough to make sure those earning even the average salary of £25,000 will see their real incomes fall. And if that same worker is earning her £25,000 from the a job in the state sector, then she’ll be seeing her salary freeze for two years, while her outgoings increase. And she’ll also be asked to pay more into her pension scheme. That is, of course, assuming her job isn’t one of the ones cut. This semi-fictional woman is very likely to see her disposable income drop by at least 10% overnight.

Osborne’s ideological thinking here is that by cutting welfare benefits, people will suddenly be forced to get on their bikes and find a job. Yes, it does sound very familiar doesn’t it?

He seems to have a bit of a short-circuit in his logic. Here’s his thinking:

1. He’s cutting the public sector and benefits. These people will then go out and find jobs in the private sector.

2. The Government is currently reducing all it’s spending as well.

3. We all come through this with a booming private sector and all is well.

The fault in his thinking is that the private sector’s biggest customer is the UK government. The UK government is cutting spending. The private sector has to either export or make cuts itself. International export markets are also making similar cuts. That leaves the private sector with no customer base and no growth. With two and half million people already unemployed, where are the new jobs coming from?

This budget is probably going to create an increase in unemployment in a scale not seen since the 30s. Back into recession and possibly worse.

The announced change to income tax will give the  majority of workers who are on basic rate an extra £170 per year which is going to be cancelled out by the increase in costs from VAT and loss of benefits, pay freezes and higher pension contributions.

The political stakes are huge for Osborne. When jobs are lost, teachers gone, police officers gone, and cuts being made to other services, there’s going to be a backlash and it’s not going to be good.

Osborne’s belief that the private sector are going to immediately fill the economic hole he has created with this round of cuts is a fatal flaw in his thinking. The trouble is that it won’t be fatal for him. It will be fatal for single mothers, the unemployed, the disabled, and the average working family.

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