You’re wrong Frank
Frank does his best Snowden impression and one is left wondering when he’ll complete act and defect to the Tories. Simply put the article is a disgrace. The economic wisdom of the 1930s is dressed up in crude morality and the incorrect language of necessity to justify an appalling conclusion. The article is simply a disgrace. But more than that, it is dangerous too. Economically it is suicide and politically it makes it harder for the government to do what is required.
A few ‘highlights’ below:
No government, however intent on making the pips of the rich squeak, has been able to raise in taxation more than 37 per cent of our gross domestic product. It is as though one of Adam Smith’s invisible hands has constructed a lead ceiling over the amount of income governments can lift off us taxpayers.
France manages 44%, Italy 43%, most Scandinavian countries the high 40s. And surely a crackdown on tax havens will help?
The government appears to hope that it will gain enough cover by repeating ad nauseam that it is Keynesian common sense to borrow during the downturn and pay back when the economy is on a more even keel. Whether it really believes this is anyone’s guess.
The thing is Frank, it is Keynesian common sense. We face a severe recession caused by a lack of demand. Only the Government can provide that demand at the moment. If the Government does not step up to the plate then the recession will be longer. GDP will shrink more and government debt will continue to increase.
The 30 per cent fall in sterling over the past year is cheerfully presented as opening up huge new export opportunities. While these opportunities seem somewhat delayed in registering in the balance of payments, its inflationary stimulus is already all too apparent. Despite the ever-present predictions of deflation, three of the four official price measurements are now on an upward path. The first signs of difficulty in raising any of the new walloping tranches of debt will not only result in long-term interest rates rising, no matter what the Bank of England gets up to in printing money, but will push sterling into yet another nosedive. Rising long-term interest rates and a collapse in sterling will place a firm grip around the government’s throat.
And now the real nonsense begins. The 30% fall in Sterling is a good thing as I, and Hopi, keep saying. The inflationary stimulus? That would be CPI falling from 5.2% to 3.2% in the last five months would it? Three of the four official measures registered slight increases in month on month figures in the last data release. Is one data point now an upward path? Long term interest rates are not an issue. 30 year gilt yields – the longest term interest rates in the UK are currently 4.4%, they’ve been below 5% since 1998.
Deflation is still the threat. I’m sorry Frank can’t see that. The fact that the USA, China, Japan, Ireland, Spain and much of Asia are in deflation seems to have escaped him. The fact that Sterling’s 30% fall, by raising the cost of imports, has prevented it here is to be welcomed.
The government not only has a moral duty now to cut public expenditure, but may be forced to do so by its inability to borrow on the scale necessary.
It might be worth trading in the 45 per cent tax rates, which the IFS believes will pull in little new revenue, for allowing pension contributions at the standard rate of tax only, with perhaps £5 billion being added annually to the revenue stream
And the first solution Frank proposes? Cut a planned progressive, and popular, tax in favour of a more regressive one on pensions. ‘Cos it’s not like we have a problem with pension funds is it?
The annual £180-190 billion gap will take some filling. Trident’s replacement comes in at between £15-£20 million. ID cards still have a £5 billion price tag. Freezing the health budget in cash terms could save something like £7.5 billion a year. Postponing the school leaving age and ceasing to overreach ourselves in sending 50 per cent of pupils to university, many of whom never complete their first year, would only bring in modest sums.
I raise these programmes as examples of the kinds of cuts that will be required to bring the national accounts towards balance. I am not suggesting that this is the programme, or that this list is adequate. But the threat to the country’s solvency is now so serious that both opposition and government need to use next week’s Budget on what needs to be done this year to begin rebuilding the country’s solvency.
What else do you want to cut Frank?
Once again we face a demand deficit, deflationary recession. The type not faced by Britain since the 1930s. And Frank’s solution? The policies of the 1930s. Disgraceful.