Thursday, 24 March 2011

The Steady Unravelling of Osborneomics

What’s the big headline message from the Budget? It’s that George Osborne’s economic experiment is, predictably, in tatters.

The Budget announcement provided the latest in a series of bad economic numbers for the Coalition.  Inflation running at 4.5% with, apparently, no prospect of its slipping back; a second consecutive Osborne Budget in which growth forecasts have been slashed; unemployment continues to rise.  The central premise of Osborneomics – that, once freed of the burden of public debt, the private sector will generate jobs in their hundreds of thousands, more than offsetting the jobs lost in the public sector – is looking more risible by the day.

Against this background, Osborne continued to promote regressive economic measures in a budget that benefitted corporations and non-doms, and at least gave the illusion of assisting motorists (one imagines that the 1p cut in fuel duty will very quickly be offset by the price effect of the Coalition’s Big Adventure in Libya).  And, according to indefatigable tax blogger Richard Murphy,  it’s looking increasingly clear that some of the biggest winners from the Budget will be tax evaders.

And elsewhere on his blog, Murphy provides the underpinning for the central critique of Osborneomics – that even if the deficit is the problem the Coalition says it is (and I’m on the side of those who argue that its importance has been hugely exaggerated), it’s a problem of tax revenues, not of spending.  Tax revenues fell off a cliff after the banking crisis of 2008 and the problem has been exacerbated by a huge problem of unpaid tax – the Tax Gap – with the numbers suggesting it’s far bigger than the Government’s (internally inconsistent) estimates suggest.  How will the long-term erosion of Corporation Tax and the gentle treatment of Non-Doms get to grips with this, at a time when cuts at HMRC ensure that tax enforcers are working with one hand tied behind their back?

In the face of this, the only rational conclusion appears to be that this Budget was not about economics, but about ideology and politics.  The few crumbs thrown at Middle England simply cannot disguise the fact that Osborneomics has locked us into a vicious spiral of cuts, falling output and increasing borrowing.  Osborne has form for talking up Ireland as a model economy but I guess this isn’t what he meant.

And the Liberal Democrat contribution to all this?  The cynic in me would like to think it’s the £100m for fixing potholes – an appropriate measure to represent a party of pavement politicians who have so clearly failed to hack the political big time.  Nick Clegg’s message to his activists suggests … clamping down on tax evasion, and the increases in tax allowances (more than offset, of course, by the VAT increase in January) But it’s difficult to see their role as anything beyond providing the lobby fodder that makes Osborneomics possible.

This post also appeared at Notes from a Broken Society

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