Even the government's best friends can't defend the chancellor's deficit-cutting mania. In Wednesday's budget expect little change
Expect nothing on Wednesday that is likely to set the UK economy moving. Everything Keynesian economists predicted would result from George Osborne's extreme austerity has come to pass. This is not a government interested in debate or argument about the conditions for growth: its political ideology trumps economic consequences. So it's cuts, and no plan B. Osborne will commend to the Commons a "budget for growth" that will do the opposite. This will be another budget for decay.
The one fact to hold on to is that �81bn is being taken out of demand. Labour was spending for growth, with cash for clunkers, the future jobs fund, the building schools scheme and more. The economy was heading in the right direction, growing at 1.2% when Labour left office. In the last quarter of 2010, it shrank by 0.6%, and the next quarterly figures are not expected to offer much comfort. That's before the full ferocity of the cuts fall in April, pockets are hit in earnest and redundancies escalate.
The government's best friends sound distinctly uncheerful. The OECD, programmed not to criticise member governments, in effect told Osborne he is running an unnecessary risk with his headlong dash to slash. The Institute of Directors said the latest dismal employment figures included "good news" that average earnings are falling. But it followed with the contradictory observation that unemployment "isn't exactly good news for consumer spending" as "household disposable income faces a big squeeze". The directors conclude: "This is the jobless and joyless recovery" ? not exactly a ringing endorsement. Surely only partisanship prompts them to call it a recovery at all. It's a slump. If this is what he calls recovery, would you choose George Osborne as your doctor? Michael Gove's passion for history in schools seems unlikely to prompt close study of economic evidence from the 1930s, a lesson apparently missing from Osborne and Cameron's education too.
The National Institute for Economic and Social Research has produced grim forecasts: no, we are not in recovery. It echoes Mervyn King's warning that we are entering the longest fall in disposable incomes since the 1920s. The Institute for Fiscal Studies says households will be 6% worse off than they would have expected to be for the period 2008-11.
Jonathan Portes, the NIESR director, damns Osborne's claim that cutting the deficit more slowly would cause a collapse in market confidence as "fundamentally flawed". He says that "to liken Britain to Greece is scaremongering". "The real hit to credibility comes from sticking to unsustainable policies. If Mr Osborne really wants a budget for growth he should amend his plans." Deficit reduction will slow growth. NIESR calls for a major house-building programme and measures to boost youth employment, restore the education maintenance allowance that keeps poor students in school, and reverse the cutting of student visas, as universities are a dynamic export industry.
In the Financial Times, Lord Skidelsky, Keynes's biographer, has called for a national investment bank, funding not only green projects but housing, transport and small and medium enterprises. In Europe such banks more than pay for themselves, boosting demand, while their long-termism makes them good investments for pension funds. The FT's two leading economists, Martin Wolf and Samuel Brittan ? hardly leftists ? urge Osborne on a weekly basis not to strangle the economy with cuts. But Osborne will have none of it.
Instead expect a few sprinkles of saccharin. There will be something for the young unemployed, but nothing as good as the genuine jobs of the axed Future Jobs Fund, paid the minimum wage. There are doubts that employers will offer Osborne's extra apprenticeships and work placements unless they are forced. As for easing petrol and airline tax, forget all that Vote Blue, Go Green pre-election miasma. A tax cut may prevent alarming fuel protests, but not buy many votes from middle Englanders hit hard by other cuts and fears for their jobs. Women will certainly notice that they have been hit hardest through child and childcare tax credits, as Howard Reed of Landman Economics shows. The Lib Dems will boast that they have made sure 500,000 on low wages pay �250 a year less in tax ? but 700,000 more on around �42,000 will fall into the 40% tax bracket and pay more. Most easements will be no more than lipstick on a pig of a budget.
Watch out for a great leap forward in this government's mission to dismantle the public sector. Osborne may spell out more graphically what Cameron has already said: all public services, bar judiciary and security, are to be put up for private tender. Everything. This is revolution ? and Labour need not be afraid of becoming the conservers of the fabric of social solidarity, from forests and libraries to post offices and lollipop ladies.
The one good idea Osborne looks like floating is a merger of income tax and national insurance. NI is an "insurance" scheme with no fund, fiendish to administer and incomprehensible for recipients: most people are clueless about which benefits are NI rights, which are universal and which are means-tested ? and why. But the reason for doing this is more ominous; the Tories reckon that amalgamating the two and announcing the basic rate as 32p will stir up anti-tax sentiment, so people demand low-tax Tory governments. But what about the complexity of the changeover, the accrued rights, the pensioners who don't pay NI but do pay tax, losers always noisier than winners ? it may not actually happen.
Otherwise this budget is designed to change nothing. Nothing will stop hundreds of thousands more people losing their jobs this year, with families thrown into turmoil and homes forfeit. Fewer college and university places mean another stream of young people tipped out this summer with nowhere to go and no hope of work, competing against unemployed graduates for a few low-grade jobs.
The Tories' hourly incantation that the deficit is "due to Labour borrowing" has worked. It leaves Labour with the harder political task of explaining why it was essential to borrow so much ? to stop catastrophic bank failure and get the economy going. Labour may lead in the polls, but those polls find it still most blamed for the deficit. The Eds still have to win back economic trust to become electable. But their own incantation that Osborne is cutting "too far, too fast" begins to gain traction as the iron heel of government policies is felt.
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