As Mr Johnson takes over as Leader of the Conservative Hard Brexit Cult, and by virtue thereof as Prime Minister, it is timely to take a quick look at what his economic and fiscal policy options are - at least in the lead up to DD-Day (Do or Die) on 31st October. It’s equally important to take stock of Mr Hammond’s record as he quietly fades away after three years as Chancellor of the Exchequer.
Whether the UK finally leaves or remains a Member of the EU, progressives are generally united in viewing the existing Treaty and legislative rules on economic oplicy as dangerously dysfunctional. In their second joint paper, emeritus Professor John Weeks and PRIME co-director Jeremy Smith set out proposals for “Economic Guidelines for a Better Union - facilitating policies that enhance not constrain EU economic policy”.
While updating our data for GDP per head of population from OECD and ONS, and doing some quick calculations, I realised a startling fact. The present age of austerity, starting with the 2010 Coalition government, and on to the Cameron / May Conservative governments, has to date been the worst since records began for average annual change in GDP per head. And if we exclude years of recession, it has been by far the worst.
In this post, PRIME’s co-director Jeremy Smith and Progressive Economy Forum Council member John Weeks analyse the current “bar room budget-brawl” between the Italian government and the European Commission, and argue that the Commission’s wrong-footed response threatens to strengthen the far right. To avoid opening the door to fascism, the EU must ditch its bias towards austerity.
It’s budget time. Austerity has severely damaged Britain’s physical and social infrastructure. Coupled with a fall in real wages, austerity has shrunk Britain’s social wage. No wonder British voters are angry and disillusioned. So let’s examine the case for a £50 billion spend. For the NHS, local government, central government services, and unfreezing benefits…
It can be done within the levels of expenditure considered acceptable during the Thatcher era. All it takes is political will – and the overturning of the ‘Treasury View’.
Severe as it has been for the welfare of the British people, eight years of so-called austerity under three Conservative governments are but the most recent manifestation of Tory assaults on public services. Since Margaret Thatcher became prime minister almost forty years ago, contracting the public sector has been a constant theme across Tory governments.
Yesterday’s increase in interest rates was a big deal. Painful as it might be for many, the real point is that the Bank is signalling the end of a particular phase of monetary policy.
Since 2010 the counterpart to self-defeating austerity policies has been expansionary monetary policies. These have inflated assets - enriching the already-rich, while failing to stimulate wider economic recovery. Yesterday the Bank of England’s Monetary Policy Committee signalled an end of this dangerous game.
But this technocratic realignment makes no difference to the fact that Bank and Treasury economists have failed to revive the economy.
Disillusionment with democracy is fuelled by the belief that social democratic politicians could not, and would not protect populations from the catastrophic impact of market forces after the 2007-9 financial crises. The political class appeared unwilling to restrain or tackle (through regulation) the sustained rise, and then implosion, of excessive private debt-creation by bankers and financiers, which in turn was used for reckless property speculation.
This morning, the OECD has published its latest Economic Outlook, which includes individual country forecasts. It is pretty downbeat about the UK’s near term prospects, and implicitly critical of the Conservative government’s policy plans. It argues that there is "fiscal space", and that higher public investment should be considered
The policies supported by the OECD, in the context of Brexit, are in essence the same as those which the 130 economists have backed in their letter to the Observer – and whom the FT's economics editor Chris Giles thinks should be “disregarded”.
Today the Institute for Fiscal Studies produced a review of political manifestos prepared for General Election 2017. Predictably, the respected, and largely independent IFS researchers review the tax and spending proposals of the different parties with little regard for the wider economy.
This skews their perspective, and their approach to analysing the economy. It is as if IFS staff consistently peer at the British economy through the wrong end of a telescope.
This essay articulates the reason behind the prolonged deflationary bias of euro area policies by means of a simple (“T-shirt”) model where private spending depends on desired savings and sustainable indebtedness. The EU Commission’s belief that it is possible to create jobs without creating new debt underscores a serious conceptual fault and a delusion that the savings-debt constraint to spending can be ignored. As long as a cap on public debt remains, the euro area will continue to live dangerously and remain vulnerable to shocks.
The Daily Mail shrieks at us today: “Tories claim Labour wants to drop a spending bomb of unfunded promises worth £45 BILLION that would wreck the economy and hit national security”. The story is complete rubbish - but aims to deflect attention from the Conservatives's own stunning record of fiscal failure.
Over the last 26 years - 13 years Conservative, 13 years Labour governments - the average annual overall deficit under Labour is less than half that under Conservative governments. And the average annual current budget deficit under Conservative governments is around four times as large as that of Labour.
The media response to the Budget is always reliably low on content and high on hyperbole. Even by these exacting standards, 2017 has been a vintage year. Coverage has focused almost exclusively on the decision to raise National Insurance contributions for self-employed workers – with some side glances to the tax treatment of dividend payments. The macroeconomic implications of the budget have passed almost without comment.
Since 2010 the European Commission, the IMF and the Greek and European political establishment have imposed a full blown internal devaluation programme that in Greece has caused a depression unlike any seen in Europe since WWII. The main drivers of the programmes have been an exaggerated and cruel implementation of the neoliberal policy agenda, including cuts in wages and pensions, increases in taxation, the fire sale of public assets at fire prices and severe cuts in funding for an already underfunded health system.
Virtually the last thing that George Osborne did before being summarily dismissed in July by the new Prime Minister, was to scrap his target for fiscal balance by 2019-20. This target, and earlier versions of it, had formed the backbone of his and the government’s economic policy since being first elected in 2010.
There is, however, no sign that the OBR will change their flawed methodology to something less arbitrary and more realistic.
There is a fundamental ethical dimension required of tax practice, whoever undertakes it. If it is to be done successfully the participant must be honest. At this most basic of levels George Osborne’s tax policy failed. There are three reasons why this is the case.
It’s the European Commission’s season for receiving a harvest of draft budgets for 2017 from all the Eurozone states – and if need be rejecting the promised fruits. The trouble is, the Commission is a particularly bad judge of the quality of economic ‘fruit’– because its testing gear (it effectively measures only inflation, budget deficits and public debt) has no way of judging the quality of what is being put to it. Take the example of Spain.
Time to compare and contrast, and look ahead. Our new Prime Minister had already made it clear that George Osborne’s commitment to a budget surplus by 2020 had been dustbinned, and this is what new Chancellor Philip Hammond said this morning on the BBC Today programme, about economic policy:
“Our economy will change as we go forward in the future and it will require a different set of parameters to measure success..."
The OECD has been the classic “supply side is what matters” international organisation for the promotion of globalisation. We have long contested this one-sided approach,
which has almost ignored the demand-side.
Now the OECD has certainly not pulled back from its call for the euphemistically-described “structural policies” – but today its Chief Economist Catherine Mann has shouted from the Paris rooftops her warning about the state of the global economy. And underlined the truly urgent, need for governments to respond – in particular via fiscal policy.