Come back, Gordon: all is forgiven!
Now which ultra-leftie commentator, in which pinko rag, came up with this rewriting of recent British economic history? The emphases are Malcolm’s: —
- During the [2008 banking] crisis, the M[onetary] P[olicy] C[ommittee]’s wise judgments prevented an infinitely worse outcome than the moderate recession that Britain suffered in 2009.
- … the Bank of England has had a superb record in hitting its targets. Since 1997, when the Bank was instructed by Parliament to keep consumer price inflation at 2 per cent in the medium term, the average annual increase in the CPI has been 1.92 per cent.
- The Bank must reflect on its responsibilities even more seriously than usual, because Britain is at greater risk of a genuine disaster than at any time since [the Governor of the Bank of England] and Gordon Brown saved the financial system in October 2008.
- … consumer confidence has already dropped to its level of March 2009, house prices have been falling since the autumn and retailers report that spending “hit a brick wall” in mid-January — it could fall off a cliff once consumers’ pay and benefit packets are depleted in May.
- If the Government is reducing its spending, consumers and businesses will have to borrow and spend more to stop the economy sliding into recession. And with after-tax incomes falling, the only way the public and businesses can spend more is by borrowing or dipping into savings. The coalition, the media and the public do not seem to understand this …
- Do you persuade the MPC to hold its ground on monetary policy and explain to the public that the threat facing Britain today is not inflation, but recession, thereby risking a few weeks of media ridicule for being “soft on inflation”, or even a “wimp”? Or do you risk Britain’s future to win some macho headlines about “courage” and “toughness”?
That’s no less than Anatole Kaletsky, writing a “open letter” to Mervyn King in yesterday’s Times.
What is instructive is how the Great British Debt problem is being tackled.
George Osborne’s three-club strategy to reduce the deficit involves swingeing cuts in the public sector (with massive unemployment therein), a heavy cut back in welfare benefits, and a whole raft of tax increases.
It is also true that Osborne was remarkably coy, before the General Election, of how the cuts would fall. Even Tim Montgomerie, arch-cheerleader for ultra-austerity, admits (though not necessarily for local consumption):
In opposition the Conservatives resisted pressure to spell set out [sic] detailed measures. They only set out some indicative spending cuts that accounted for no more than 10% of the adjustment that was necessary to eliminate Britain’s deficit. They were worried that the interest groups affected by cuts would rally against them.
To achieve his target of nil borrowing by 2015/16, Osborne has some way to go:
Osborne said total public-sector net borrowing for the 2010/2011 financial year was £146bn, £2.5bn less than the £148.5bn the OBR forecast in November. However, government borrowing will rise more than previously projected for each of the following years.
Public-sector borrowing is projected to hit £122bn in the 2011/12 financial year, compared with £117bn previously forecast. Borrowing will be £101bn in 2012/13, compared with a previously forecast £91bn. In 2013/14, it is now forecast to be £70bn rather than £60bn; in 2014/15 it will be £46bn rather than £35bn; and in 2015/16 it will be £29bn rather than £18bn.
The OBR said the government will meet its fiscal target of eliminating the structural budget deficit by 2015/16. The government is also forecast to meet its second fiscal goal of having net debt to gross domestic product falling by 2015/16. The OBR sees net debt to GDP peaking at 71% in 2013/14 and then falling—ensuring the government hits its goal a year early.
But there’s another side to the same coin (and coins of the realm are the subject here):
Property-related borrowing and lending between financial institutions helped the collected debt of households, businesses and government balloon from roughly twice gross domestic product (GDP) in 1987 to around 5.4 times by 2009, when total debt stood at £7.5 trillion, according to the report.
Despite government austerity measures, the firm’s latest economic outlook sees the UK’s debt to GDP ratio sticking near historic highs as borrowing hits £10.2 trillion by 2015.
But if the economy does not perform as well as expected, one plausible alternative scenario could still see the debt burden soar as high as 5.8 times of GDP…
Even that assessment, made only last November, is open to re-appraisal:
The Office for Budget Responsibility has raised its prediction of total household debt in 2015 by a staggering £303bn since late last year, in the belief that families and individuals will respond to straitened times by extra borrowing. Average household debt based on the OBR figures is forecast to rise to £77,309 by 2015, rather than the £66,291 under previous projections.
Economists say the figures show that George Osborne’s drive to slash the public deficit and his predictions on growth are based on assumptions that debt will switch from the government’s books to private households – undermining his claims to be a debt-slashing chancellor.
In short, the whole intent is to off-load the national deficit onto personal indebtedness.
Once that truth is established, much else falls into place: ramping up VAT, increasing student debt, privatizing services, introducing charges and increasing the rest … you see it, he’ll tax it or charge for it.
If the Great British Public do not oblige, if they stay on spending strike, then the whole of Osborne’s strategy is in ruins, along with the national economy.
Or, as Paul Krugman has it:
… the only way the economy can avoid taking a hit from government cuts is if private spending rises to fill the gap — and although you rarely hear the austerians admitting this, the only way that can happen is if people take on more debt. So we have the spectacle of a government that inveighs against the evils of debt pinning all its hopes on an assumption that over-indebted households will dig their hole even deeper.
All in all, it’s quite a spectacle. It would be funny, except that millions of people will suffer the cost of this folly.