The Magical Land of Os(borne) – fantasy economics

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George Osborne’s claim that his nonsense policies have magically turned the economy around, coupled with his equally-preposterous claim that the UK needs another seven years of austerity before he can balance the books – provides a fine example of the duality at the heart of Conservative economic policy.

He needs to convince you that his choices have made a difference and the nation’s fortunes are changing, but he also need to convince you that we’re in a terrible mess – or he won’t have an excuse to continue cutting more public services and selling them into the private sector so his rich friends can use them to fleece you.

The two claims are not only contradictory of each other – they are self-contradictory. The evidence shows that Osborne’s policies delayed the recovery, rather than encouraging it, and the ‘Starve The Beast’ plan he cribbed from George W Bush has long been recognised as harmful to any country’s economic health; by cutting services he is starving the economy of the liquidity that is its lifeblood.

(This is a point worth remembering: Whenever a TV news reporter says Osborne or the government want to make cuts in order to “save” money, they mean the government will be “taking money out of the economy” – which will consequently be worth less. As a result, some people will have to become poorer. Can you guess who?)

Before we congratulate Osborne in ways that are anything like as effusive as David Cameron’s endorsement earlier this week, let’s look at the facts: According to Martin Wolf in the Financial Times, in three and a half years, the UK’s economic performance has improved by just 2.2 per cent – against a prediction of 8.2 per cent by his pet Office of Budget (Ir)Responsibility. In the second quarter of 2013, Gross Domestic Product was 3.3 per cent below its pre-crisis peak and 18 per cent below its 1980-2007 trend, making this the slowest British recovery on record.

Osborne and the Conservatives point proudly to the strong increase in private-sector jobs but, as Mr Wolf states, “this is hardly something to boast about”. While employment – on paper – is at an all-time high, productivity has fallen back to the level it reached in 2005. What does this say about the quality of the jobs that are being filled? Are they high-quality, long-term, well-paid careers, or are they part-time, zero-hours, throwaway fillers? We all know the answer to that. Average wages have been cut by nine per cent, in real terms, since 2010 – and they are still falling.

Even by the standards of other crisis-hit, high-income economies, the UK’s performance has been dismal, says Mr Wolf, pointing to work by Spencer Dale and James Talbot of the Bank of England. This indicates that the Eurozone has performed just as badly – but the difference is that the Eurozone countries do not have control of every economic lever that is available to them; Britain does.

Osborne claims that high global inflation and the performance of the Eurozone have impacted on the UK; Mr Wolf’s assertion is that austerity is the reason for this disappointment – and Osborne was just as much a cheerleader for austerity in Europe as he has been for it in the UK. Furthermore, as the Labour Party pointed out in its report, “David Cameron’s out of touch, you’re out of pocket” (2013), inflation in other G7 countries has been lower than in the UK, indicating that high global prices have little to do with the problem.

“Yes, but,” says Osborne, “austerity has kept interest rates down.” Did it? Did it really? In that case, interest rates would have been kept low because of the promise (in 2010) that borrowing would be brought down by 2015. When the Coalition came to power, Osborne said he expected to borrow a total of £322 billion by 2015. In March this year, that figure had risen to £564 billion – an increase of 75 per cent! Meanwhile the deadline for the national debt to start falling has slipped from 2014-15 back to 2017-18 and the level at which the debt was expected to hit its peak has jumped from 70.3 per cent of GDP to 85.6 per cent. The deficit has been stuck at £120 billion a year for the last two financial years, despite the repeated claims that it has been cut by one-third. None of this has affected long-term interest rates and neither did the loss of the UK’s AAA credit rating in February this year.

Here’s why – as explained in an article on this site in June:

As Professor Malcolm Sawyer notes in Fiscal Austerity: The ‘cure’ which makes the patient worse (Centre for Labour and Social Studies, May 2012), “It is well-known that a government can always service debt provided that it is denominated in its own currency. At the limit the UK government can ‘print the money’ in order to service the debt: this would not take form of literally ‘printing money’ but rather the Central Bank being a willing purchaser of government debt in exchange for money.” This is what is happening at the moment. Our debt is in UK pounds, and we can always service it. Our creditors know that, so they remain happy to continue financing it.

“With interest rates at the zero bound, austerity weakened the economy relative to what might otherwise have happened,” wrote Mr Wolf.

“Nobody thought recovery would never happen under austerity, merely that it would be damagingly delayed… This has been an unnecessarily protracted slump. It is good that recovery is here, though it is far too soon to tell its quality and durability. But this does not justify what remains a large unforced error.”

Looking to the future, Osborne has reacted to the new barrage of Labour policies, all of which have been carefully costed against savings in current budget areas, with a series of rushed measures that are entirely unfunded. Remember that, next time a Conservative accuses Labour of borrowing and spending!

The married couples’ allowance, worth less than £4 per week (and less than £2 if you’re on a low income) is unfunded. The promised fuel duty freeze is unfunded. These will cost more than £2 billion and no source has been identified.

And what about the £12 billion stage two of the housing ‘Help to Buy’ scheme, that Osborne rushed forward to this month?

He has pulled £14 billion out of nowhere, but still expects us to believe he will resume his stalled deficit cuts by £35 billion by 2015, £42 billion by 2017-18 and £43 billion by 2020, in order to create a budget surplus.

All the while, he is promising “improved living standards for this generation and the next”. For whom? These cuts must come from somewhere, and they mean removing a cumulative total of £120 billion from the economy each year by 2020. That has to come from somewhere.

Look at the amount by which bosses’ pay in FTSE100 companies has increased in the last three years – 32 per cent, while average worker pay has dropped by nine per cent.

Do you really think the “Have-yachts” will be paying for these cuts?

Further reading: George Osborne’s credibility gap (Alistair Darling, Guardian)

Have the Tories taken leave of their senses? (Michael Meacher, blog article)

From the DWP to the economy – the Coalition’s growing credibility chasm (Vox Political, June 2, 2013)

Treasury responds to Vox’s austerity challenge (Vox Political, May 13, 2013)

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Conservative conference will expose the credibility chasm at the heart of the party

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What Britain Wants: Delegates at the Conservative Party Conference in Manchester were outnumbered three-to-one by the 50,000 demonstrators against the party’s austerity policies, who chanted “Out, Tory scum!”

Do rank-and-file Tories really believe their party’s “achievements” in taxation will propel it to victory in the next election?

To recap: The Coalition government has cut taxes to allow 13,000 income-millionaires an extra £100,000 each, but at the other end of the income scale, raising the tax threshold nominally gave the poorest in society an extra £600 per year – which has been completely wiped out by the rising cost of living and cuts in social security benefits. Most people in the UK earn less than the average wage so it is easy to conclude that many more people will be affected.

It might be a mouth-watering policy for the ‘have-yachts’ who now appear to comprise the majority of party membership after the mass defections and membership card-burning displays of recent months, but party leaders know that they need to keep that sort of thing quiet and woo the masses with a more attractive proposition.

They’re not stupid. They have learned a trick or two from David Cameron’s short-lived “detoxification” before they came back into public office, and they believe their “bait and switch” tactic is serving them well. They need a user-friendly “bait” to get the average citizens’ votes, after which they can “switch” back to the terrifying policies of oppression that we have tasted – yes, only tasted – over the last three years.

So Andrew Rawnsley in The Guardian tells us: “The high-speed rail link is to be rebranded ‘the north-south railway’ in an attempt to convince voters that the Tories want an economic recovery for all regions of the country.”

And Andrew Gimson on ConservativeHome states: “There is a bit of window-dressing about cautions, which is meant to show that the Tories are tough on crime. And there is an irresponsible scheme to help people buy over-priced houses, which is meant to show that the party is on the side of people who do not have rich parents.

“If I were a floating voter, I think I would find these attempts to gain my support rather patronising,” he adds – and we can all agree with that.

Then he has to ruin it with: “Why can the party not rely on the substantial reforms being made in such fields as taxation, welfare, education and health?”

Simple answer: Because nobody wanted them.

We have already covered taxation in part. To the regressive changes in income tax that have helped the rich and attacked the poor, we should add the non-attempt to handle tax avoidance, which amounts to a few weasel words spoken for the benefit of the public while the ‘Big Four’ accountancy (and tax avoidance) firms continue to write the law on the subject, ensuring that their schemes – together with the people and firms on them – continue to avoid the attention of HM Revenue and Customs.

Is that fair? Do you think it will appeal to the poverty-stricken voter-on-the-street?

Welfare: George Osborne was set to unveil a new intensification of Workfare today (Monday), in which everyone who has been unemployed for more than two years will have to go on work placements in order to receive their benefits. This is, of course, utterly pointless. Such schemes ensure that fewer real jobs are available (why should an employer pay anyone a living wage when the government is supplying a steady stream of workers for free?) and have proved worse than useless at getting anyone into the few positions that remain. The announcement may cheer the Tory faithful but Andrew Gimson’s article suggests that these people are further out of touch than their MPs!

It is interesting that the new plan is not being unveiled by Work and Pensions Secretary Iain Duncan Smith, but by his rival. It seems that Smith really has been ‘Returned To Unit’ for the time being – perhaps because he has done more to re-toxify the Tory brand than most of the party’s other front-benchers put together!

It is, however, a sad example of the power of media censorship that people are more stirred up by his bedroom tax than they are about the fact that his Unum-inspired and Atos-driven work capability assessments for Employment and Support Allowance claimants have led to so many thousands of deaths – yes, deaths – that the government is refusing to release the fatality statistics.

Education: Michael Gove is working hard to dismantle state education, so schools may be run for profit, rather than to educate our children. He has distorted international statistics to make it seem that our performance had worsened when in fact it had improved – and got an official warning about it from the UK Statistics Authority. He lied about the advantages of schools becoming academies – all schools already control the length of the school day, teachers’ pay and the curriculum. His claim that autonomy would improve performance remains entirely unfounded – non-academy schools outperform them. His expensive Free Schools experiment is pointless if intended to improve education – in Sweden a similar experiment increased racial and social divisions while education standards dropped. American ‘Charter’ schools were also held up as examples of “extraordinary” change, but almost half showed no improvement and more than one-third worsened. Gove’s next stop, following the ‘Charter’ schools’ example, will be privatisation – schools-for-profit. Meanwhile, he intends to worsen academic achievement by promoting an outdated, learn-by-rote, system of teaching that is scorned by the other countries he says he admires, in favour of creativity. And he has undermined not only teacher morale and conditions, but also the morale of his own civil servants. Our children don’t even have the right to a qualified teacher any more. Now he wants performance-related-pay, rather than national pay awards – further undermining teachers and teaching standards.

And Tory policy on health has been the biggest betrayal of the lot: If David Cameron had any support at all in 2010, it was because he had promised to support the National Health Service in the then-upcoming time of austerity. He promised no top-down reorganisations of the NHS, even though he knew his then-health spokesman, Andrew Lansley, had been working on exactly that for many years. After worming his way into Number 10, they immediately embarked on the piecemeal privatisation of this country’s greatest asset, and this is now well under way, with contracts worth billions of pounds awarded to private companies for work that was previously carried out by the nationalised service, and a quarter of the commissioning groups – that we were told would be run by GPs and other health specialists – now run by the private accounting firm (also one of the Big Four and a subsidiary of Atos) KPMG.

Even their performance on the economy – which both Cameron and Osborne made the yardstick for determining this Parliament’s success – has been poor. The current upturn has nothing to do with Osborne’s policies and everything to do with the UK’s current position in the economic cycle – in short, things had to get better eventually.

This is why the Tories are gathering under the false slogan “For Hard-Working People”, rather than the more appropriate “For The Idle Rich” that Andrew Rawnsley suggests. The party’s leaders understand what their dwindling support base does not – that they need the masses to believe the Conservatives are on their side.

This is why they can only wheel out watered-down or repackaged policies that they hope will please the crowds – the party’s leaders understand that anything more solid will turn us away.

If you get the chance, have a good look at the speakers in this year’s conference. Every one of them will be terrified that their message isn’t strong enough or that the public will see through it – and remove their snouts from the trough in 2015.

The fact is, they had already blown it – long before they got anywhere near Manchester.