£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
    +6

    Comment number 4.

    It begs the question whether they are concerned about the living standards of the masses. Austerity is a key tool in the bosses' main aim with this crisis, to lower living standards in order to boost profits. There is an interesting post here about it http://t.co/9Cth8xJ7 which also points out the problems with such a project. Revealingly UK wage share has fallen from 65% in 1975 to 53%

  • rate this
    +4

    Comment number 9.

    You will see at least some rebellion, not just from public sector. People are irate because of what the banks have done. Again, I revert to forensic audits of banks, write-off of all odious debts, pay valid debts only, & haul culprits into Court. This major shake-up will cause us to suffer. Advantage: transparent accounting, riddance to nefarious, potentially illegal financial products.

  • 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
    +3

    Comment number 1.

    We're all doomed, doomed i tell yer...

  • rate this
    +3

    Comment number 3.

    The Osborne Autumn statement demonstrates the failure of the Micawber moneynomics approach (treating the economy like it is a super household budget) to economic & debt management. Austerity is simply a futile and incompetent way of dealing with national deficits and debts. We need a Campaign for Active Management of the Economy (CAME) where there are more levers than a Clapham Junction signal box

 

Comments 5 of 29

 

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