£30bn of extra cuts keep Osborne on track, just

 

Here's my snap assessment of the Autumn Statement. First the big analytical takeaways:

  • The government will only just hit its self-imposed target of eliminating the structural deficit by 2016. The OBR document says its central forecast is to get rid of the structural deficit by 2016-17 but only by "a total discretionary cut in non-investment spending and in the CACB of £30bn or 1.5 per cent of GDP in 2016-17" - that is £30bn of extra austerity, in the form of pay freezes in the public sector and down rating of tax credits
  • George Osborne will borrow £111bn more than Alistair Darling projected over the parliament
  • The money to bring forward infrastructure projects is coming from further suppression of public sector workers' pay, from overseas aid, from tax credits and by radically moving forward the date of retirement at 67 to 2026.

There is a fair bit of tentative dirigisme in there: a national infrastructure plan; transport links upgraded with macro-economic design; exemption from carbon targets for crucial industries; 100% capex tax exemption in the north of England.

It poses the old question in a new way: can we stimulate a new kind of growth, based on manufacturing and exported goods in time to rebalance the economy; and can we avoid a second recession by printing money for long enough so that the £111bn Osborne is taking out of demand does not tank the entire economy.

But none of this factors in the results of the euro crisis. As I write the evidence of a credit crunch in the European banking system is spilling out. Even if Merkozy get their act together and avoid Eurogeddon, it is going to hit growth in our biggest export market.

I think this changes the "Plan A vs. Plan B" debate as follows: Plan A is significantly amended - there will be a high chance of missing the fiscal target; but Labour's "Plan B" must take account of the OBR's damning judgement about what Labour did to the structural deficit.

We are now about to find if a bit of dirigisme, a lot of austerity, and swathes of printed money can a) prevent recession b) turn the economy around c) get a coalition of Conservatives and Lib Dems elected - should they wish to be so - in 2015.

I don't think this will provoke a wave of public sector strikes on top of the pensions unrest already under-way. What it does is tee up a much bigger electoral pitch by Labour to the public sector workforce.

There is now no chance of a sustained recovery, either in the real economy or the public finances, by the time we get to the pre-election period.

 
Paul Mason Article written by Paul Mason Paul Mason Former economics editor, Newsnight

End of an era

After 12 years on Newsnight, Economics editor Paul Mason has moved on to pastures new and this blog is now closed.

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  • rate this
    -1

    Comment number 29.

    I've not come across one sane argument in favour of maintaining the index linking of benefits by 5% when the wokers and tax payers of the country have increases frozen if any at all. I can only see this as a vain attempt by Clegg, Cable & Co to save some of their deposits at the next election. Anyone got an answer why Alexander seems keen to outdo the Tories in austerity?

  • rate this
    0

    Comment number 28.

    #5 alanhunter99 scaling has been successfully attempted - X Factor - oh sorry they don't play instruments do they?

  • rate this
    +1

    Comment number 27.

    Dear Mr Mason,
    Like the rest of my household I am unable to get a grasp on the billions that are being manipulated by our Government. Would it be possible to translate the numbers to say, per BBC licence holder? or per capita. I think we could then comprehend the key numbers and fully understand what the politicians(and pundits) are saying.
    Thank you for your fine work,
    Yours Sincerely,

  • rate this
    +2

    Comment number 26.

    Watching the statement yesterday raised a question of the capacity of our politicians:do our politicians ever have to under go random (or even targeted) drug screening tests?

    I am not for one moment suggesting that Mr.Osbourne apparently 'wired' demeanor and troublesome tickly cough was in any way related to cocaine misuse...I just would like to know the answer to my question.

  • rate this
    -1

    Comment number 25.

    Might it be the most statesman like thing he has ever done for Gordon Brown to write a personal letter of apology for going so far over the limit on the national credit card - while grinning and jeering at all the sensible commentators who warned about state debt. More prune than prudent.

  • rate this
    +1

    Comment number 24.

    Tories spending more than labour? I think the polititians are bystanders to this slow motion train crash.

    Austerity reduces growth and increased the number of people needing benefit, it also reduces tax income. Which increases the deficit.

    More borrowing means more interest payments which is a bigger strain on the deficit.

    We are in a debt spiral and need a way out now. Monetary reform?

  • rate this
    +1

    Comment number 23.

    The uneasy consensus of opinion between Labour v ConDems (as of course many will, of course - 'disagree') is that UK austerity was needed to bring govt spending under much better control - but what to do when lowest govt borrowing costs achieved as is NOW.
    Wait for 'recovery' or gamble some benefits on a stimulus - e.g VAT cut to put money in everyone's pocket probably the best? How about - NOW!

  • rate this
    +1

    Comment number 22.

    The only real question for me is how long George Osborne can get away with having the brass neck to pretend he's got any idea at all about how to prevent the collapse in the UK's credit rating, the looming Sterling crisis which is bound to happen once we are in a deep recession. Will Cameron ever be able to sack him?

  • rate this
    0

    Comment number 21.

    #17All for All

    Some folk may well be good hearted. However in these dire times companies, department, schools etc as well as individuals will be tightening their belts.

    Real nasty, since sooner or later their legs will drop off!

  • rate this
    +1

    Comment number 20.

    Why would any normal person object to higher loft conversions providing the front elevation slope was continued to the new permitted development height?

    The government could make a further precondition that solar panels are installed with no subsidy

    The ground floor could then be used to house the old reducing risk to them from fire hazard and stair falls

    No need for green belt development

  • rate this
    0

    Comment number 19.

    There is now no chance of a sustained recovery, either in the real economy or the public finances, by the time we get to the pre-election period.

    ooo

    Nonsence there is a pent up demand in the economy for loft conversions 2 feet above ridge height with inward opening french doors and juliet balcony

    A mInor change in the permitted development regs would unleash immediate economic activity,

  • rate this
    +2

    Comment number 18.

    Have LibDem MPs woken up to joining the 3M unemployed? There is now no chance of them being able to even fill a London taxi with MPs in the next Parliament. With pensioners, the young, those in the public sector & the majority of women voters all mightly p*ssed off, LibDems will pay the price.

    I'd put good money on Clegg crossing the floor to become a Tory MP along with Alexander & Co.

  • rate this
    0

    Comment number 17.

    prudeboy @16

    All MAY be "honest", as "good folk", in boardroom, office, laboratory, factory-floor, shop

    Some have / earn more power, to help selves & others; others will share occasional 'bright ideas', giving mainly their dependability: there is inter-dependence in specialised dedication

    Must democracy wait until 'the excluded' swell to include own children etc?

    Strength in disunity??

  • rate this
    0

    Comment number 16.

    The economy can be analysed, analysed examined dissected put your adjective here and analysed yet again.
    However the good folk trying to earn an honest living doing some good honest manufacturing plain ain't gonna expand whilst there is uncertainty.
    Cant force them to.
    These guys have been on a war footing for years.
    The only thing that will change their view and actions is, dare I say it, a war.

  • rate this
    +3

    Comment number 15.

    OBR position is absurd?
    With so much uncertainty - producing forecasts of 0.1% tolerance growth when all recent govt forecasts have been revised in recent years - some by a full % point.
    2012 - 0.? % growth
    2013 - 2.? % growth
    Should be insulting to anyone of reasonable intelligence - Why must assumption be made than UK must have strong recovery in 2013/14/15?
    There is no evidence for this!

  • rate this
    +1

    Comment number 14.

    90% of us scheduled for many years of misery cos UK govt not pulling the right levers. Osbo has done a good job on deficit management as having lowest possible govt borrowing costs is critical for survival - never mind any kind of 'recovery'. But Osbo missed the big boat on cutting VAT as an extra post income tax, tax on our spending is absurd & a massive depressant on 90% of us & entire economy.

  • rate this
    +1

    Comment number 13.

    I always know when things are bad now, Paul Mason starts posting again.

    Maybe there should be a 'Paul Mason index' to rival Chicago's VIX.

    Now what we really need is a really nasty protracted war to take everybodies mind of this economic stuff and replace it with something even worse before the population figures out they are being shafted from cradle to crave and do something about it.

  • rate this
    +1

    Comment number 12.

    It was announced recentley that 99 of the FTSE 100 companies did not pay an estimated £16billion in taxes , combined with the estimated cost of Atomic weapons research costing the Uk tax payer a further £10-20Billion surely we should be looking to recovering the lost tax and eliminate AW research. This would save approx £144billion by 2015, approx 10% of the expected borrowing, thats austerity.

  • rate this
    +1

    Comment number 11.

    I trust MP's pay will be frozen as they are already receiving above the average uk pay.

  • rate this
    +1

    Comment number 10.

    Austerity will get you nowhere.
    QE will get you nowhere.
    Asking taxpayers to suffer for what banks have done will get you nowhere, except to increase policing costs.
    There is no chance of a sustained recovery in anything UK Govt has done, is doing.

 

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