Get Ready for Emergency Budget II
We’ve known for a while that as much as George Osborne has a “Plan B” it is for more quantitative easing from the Bank of England, the so-called QE II option.
I think, in light of today’s public borrowing figures, it might be time to start worrying about Emergency Budget II.
I’ve argued that a policy based on cutting the deficit through cutting spending won’t work – to quote John Maynard Keynes – “you can’t balance the budget through measures which reduce the national income”. Cuts, at the pace Osborne is planning, suck demand out of the economy leading to lower growth, higher unemployment and hence lower tax revenues and higher welfare spending.
The Chancellor is aiming to slash £15bn from the welfare budget. How likely is that if unemployment remains high or rises?
Today the Treasury greeted the worst November public figures on record by saying that “this shows why the UK had to take decisive action”.
The thing is though, that is also what they said in September and August when borrowing increased year on year. It’s time to step back and take a longer-term look.
In the five months (November back to July) since the emergency budget, public borrowing has totalled £65.3bn. In the period July to November 2009 (when we where “on the verge of bankruptcy”) public sector borrowing totalled £63.6bn. Public sector borrowing is up 2.6% in that timeframe. (Details in pdf table PSF2).
With Danny Alexander reaffirming the Coalition’s commitment to cuts in this morning’s FT, and with last week’s declaration that there is no plan B, one has to start to worry about next March’s budget. They’ve lashed themselves to the mast of deficit reduction through spending cuts, and even if it patently fails they’ll find it hard to back down. If the medicine isn’t working they’ll simply double the dose
We only have to look across the Irish Sea to see how this ends.
In December 2009 Irish Finance Minister Brian Lenihan said that Budget 2010 was ‘the last big push’ of this economic crisis, adding that ‘the worst is over’. It didn’t work, the deficit continued to rise as fiscal policy depressed the economy. One year later an even more savage budget followed.
Will next year’s budget be even more savage than the Emergency Budget/CSR? I’m starting to worry that it might be.