The chancellor promised 2015 would be the year government borrowing would hit zero, but we’re facing a noxious economic brew of his own making
George Osborne yesterday warned us about a “cocktail of threats” brewing in the world economy. All the ingredients are there for a noxious brew. The emerging markets debt bubble. The ongoing stock market turmoil in China. Recession in Brazil and Russia, and the slowdown in India. The collapse in global commodity prices.
I’ve warned about the danger signs elsewhere before. But curiously, Osborne didn’t talk up these “threats” in last year’s autumn statement. He didn’t raise them at the summer budget. They were hardly a centrepiece of his election campaign.
Quite the opposite. He’s spent a fair few years now talking up how clever he has been, and how good everything is going to be. This was a result of his “long-term economic plan”. But there’s never been a “long-term economic plan”. Just the short-term politics of austerity. The result is Osborne serving up a rather unpleasant domestic cocktail of his own making.
The chancellor claims Britain is “living within its means”, but our borrowing from the rest of the world rose to record levels. We have to borrow because we buy far more from the rest of the world than the rest of the world buys from us. And because we’ve borrowed so much money, and sold off so many assets, the payments due to the rest of the world are astronomical. We are borrowing more from abroad than any other developed economy.
If Osborne’s “march of the makers” had ever got out of the parade ground, this deficit with the rest of the world – our “current account” deficit – might have been shrunk. Instead, manufacturing exports have slumped and manufacturing output is decreasing, with manufacturing output still below its level of seven years ago, before the crash.
Far from “rebalancing” the economy, Britain has become more dependent on services, and we’ve shrunk manufacturing, which is the bedrock of any modern economy. And while employment in London is up nearly 12% since 2010, it’s up just 0.3% across the rest of the country. Even then, far too many new jobs are poorly paid and insecure, with pay still down on 2008.
I doubt even Osborne believes his own stories any more. That’s why he’s getting his excuses in first
The increase in poorly paid, insecure jobs means British households can’t “live within their means” either. After years of paying back their debts, households are being forced to borrow once more. Unsecured borrowing, covering credit cards, store cards and (alarmingly) payday lending is now rising at the fastest rate since before the crash.
The centrepiece of Osborne’s much-hyped “plan” is his effort to bring down the government’s own borrowing, while hoping he can increase household debts. And with tremors in China, it’s Britain that, thanks to its overstretched banks, has the largest single exposure to Chinese debt of any major western economy.
When Osborne first arrived in office, he promised us that 2015 was the year that government borrowing would hit zero. The figures, out just before Christmas, speak for themselves. Not only is government borrowing running at £67bn for the financial year to date, borrowing in November alone was the largest since 2013. Osborne has spectacularly failed to meet his own targets.
In addition, he’s letting the financiers off the hook with a return to a soft-touch approach to bank regulations. Last summer, he kicked out the head of the watchdog he set up, the Financial Conduct Authority, which is charged with keeping bankers in line, for being a little too good at his job; meanwhile he stayed silent as the FCA watered down its vital inquiry into banking culture. And on top of all this he’s also slashed taxes for mega-banks, despite recent revelations showing some banks are not paying any tax.
As a result, it’ll hardly be surprising if the bankers are getting back to their old tricks.
I doubt even Osborne believes his own stories any more. That’s why he’s getting his excuses in first. His austerity programme is leaving our economy more unbalanced, with rising debts, and overexposed to risks elsewhere in the world. But, incredibly, he wants more of the same failure – more austerity. Instead, we need real investment in science, skills, and infrastructure, made for the long term across the whole country, not excuses and spin. Without this, George Osborne offers warnings but no solutions to a domestic cocktail that he made that will leave the rest of us with the hangover.
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