The Guardian and the Center for Labour and Social Studies (CLASS) asked experts to give a short response to the Autumn Statement presented on the 5th December. Follow the links below and you will find my own contributions as well other commentaries on Chancellor Osborne announcements.
Osborne sees troubles ahead
by Ann Pettifor
Far from welcoming signs of economic growth, the chancellor opened his statement today with distinct uneasiness about the “Alice in Wongaland” recovery. In sombre mood, he referred to “spotting debt bubbles” before they burst, “unsustainable spending” and “effects on family budgets (from the crisis) still being felt”.
The fact is that economic recovery poses a severe political threat to the chancellor and his party. The worry is that Britain’s consumers will be swept away by the rising waters of recovery and consumption, and then beached by soaring interest rates – before the next election.
Households are indebted to the tune of 140% of their income. But companies – accused of hoarding cash and not investing – are scarcely in better health. The corporate debt to income ratio, like that of the household sector, was at 140% in June 2013. No wonder firms are hoarding cash, and failing to invest. No wonder the chancellor today offered subsidies to exporters, the construction sector and white van lorry drivers – to add to the effective subsidies offered to bankers in the form of various lending schemes.
And while the chancellor expressed the hope that the Bank of England “can keep interest rates lower for longer and support the country …” he also knows that the bank has deliberately abandoned its control over rates of interest on the whole spectrum of lending – rates charged to small and large firms, households and credit card holders. Instead these rates are fixed by “the free market” and at the whim of global bond markets. So the threat to the UK’s heavily indebted private sector grows. This is the chancellor’s real fear: that the recovery will end in “a sea of tears” before voters go to the polls.
From: The Guardian, Autumn statement 2013: our writers’ verdict:Our panellists give their reaction to George Osborne’s autumn statement on the economy.
Making inroads into the state
by Ann Pettifor
“The bottom line is that you can only really make serious inroads into the size of the state during an economic crisis. This may be pro-cyclical, but there is never any appetite for it in the good times; it can only be done in the bad.”
Jeremy Warner, Daily Telegraph, 11 September, 2013.
The Chancellor echoed the warning in David Cameron’s Mansion House speech and the OBR’s prediction that austerity is here to stay if we are to have “a state we can afford”. “We need to do more with less” as the Prime Minister argued. “Not just now, but permanently.”
At the same time, he offered a justification for further cuts in the corporation tax rate, down to 20%.
We must not be fooled. Slashing government spending and cutting corporation tax revenues does not cut the deficit, nor does it bring down total outstanding public debt. On the contrary, total government debt has risen over the year from 72% of GDP in 2012 to 75.4% in October 2013(ONS).
Despite economists’ expectations that the government deficit – the difference between expenditure and income – would fall to £7.25bn in October, borrowing fell only marginally to £8.078bn, compared to £8.24bn in October 2012. Much to the consternation of Conservatives, absolute levels of the deficit are still large – despite savage cuts to welfare, the NHS and defence – with this year’s deficit likely to be more than 6.5% of GDP.
No the Coalition’s goal is to slash the state – not the deficit. If Ministers really wanted to cut the deficit, they would raise incomes, and create more well-paid jobs. Only employment can generate the government revenues needed to balance the budget – through the effect of the multiplier on income and other indirect taxes.
All else is smoke and mirrors: cover for “making inroads into the state”.
From: The Center for Labour and Social Studies, Responses to the Autumn Statement.