This should have been a budget for growth, helping the UK economy to recover from the deepest and longest depression on record. George Osborne’s announcements on childcare, investment in industrial research and of course raising the personal income tax allowance to £10,000 are welcome steps in the right direction. They are all are clear examples of Liberal Democrat influence in the Coalition, not least the flagship move on the tax threshold. These measures, however, don’t go nearly far enough to support businesses starved of credit or households facing escalating living costs and squeezed incomes – where was the action required to get the banks lending, builders building and investment flowing?
The government insists on balancing its own finances through a mixture of spending cuts and tax rises, ignoring the suppression of demand and therefore growth that this prolonged austerity creates. This balance-sheet approach to economic policy is not only self-defeating through Keynes’ famous ‘paradox of thrift,’ it distracts from the crucial work needed to fix the underlying economic problems that caused the budget deficit to balloon. A clear example is the piecemeal way in which the slashing of capital investment – acknowledged by Vince Cable and http://www.bbc.co.uk/news/uk-politics-21190108 as a grave mistake – is being reversed. Government guarantees have proven ineffective at a time of uncertainty and demand, so now we see a tiny bit of ‘extra’ capital spending, which is funded by further cuts elsewhere in a misguided attempt to remain fiscally neutral.
Further top-slicing cuts aren’t the way to fund capital funding – far from spooking bond markets and spiking interest rates, borrowing to invest would prepare the ground for tomorrow’s prosperity at a time when private investment has all-but dried up and the need for better infrastructure grows ever more urgent. Osborne’s fear of borrowing to invest (as opposed to borrowing to make up for a failed macro-policy) is most evident in his desperate attempt to reflate the house price bubble by pumping billions into sub-prime mortgages – so much for rebalancing the economy.
As Vince Cable recently set out in a lucid essay, the balance of risks has shifted since Osborne’s first budget, and government should fund large-scale investment by borrowing at the lowest rates on record. Further, it should take on the task of reforming the very roots of our political economy, moving beyond the sterile debate about borrowing into more radical territory that aids innovation, embeds fairness in the labour market and finally fixes the dysfunctional banking system.
This should have been a budget for growth, delivered by a Chancellor committed to responsible stewardship of the whole economy, not just the Treasury’s own books. Too busy moonlighting as Tory election strategist-in-chief, George is no such Chancellor, so this was no such budget.
* Prateek Buch is Director of the Social Liberal Forum and serves on the Liberal Democrat Federal Policy Committee