The Independent View: Autumn Statement makes the best of a bad situation

How did George do then? The Chancellor needs to walk the line between providing stimulus on the one hand and protecting Britain from the bond markets on the other. It really isn’t easy to decide which side he should err on.

The bond markets are currently a ravenous pack of hyenas who have tasted blood in Greece, Italy and Portugal. Although they’re currently distracted by Belgium, Spain and now France even the slightest hint of weakness on Britain’s part will draw their perilous attention our way.

That said, protecting Britain from a bond market savaging must not be done at the expense of the people who actually make up Britain. Unemployment is toxic for the entire country. Each year a new cohort of working age Britons is going to enter a depressed jobs market. Those that find a job will find themselves worked harder and for less pay, and they’ll be the lucky ones. The rest will endure scarring periods of unemployment with no promise of light at the end of the tunnel perhaps into the late 2010s.

There are no easy solutions to any of this. The pain is going to have to be borne; the only thing within the power of Government is to mitigate the pain on those least able to bear it, and it is on this basis that the Chancellor should be judged.

Infrastructure spending is one of the few tools left in the stimulus box, and it has the added advantage of being attractive to overseas investors. But even if Lou Jiwei – Chairman of the $410bn China Investment Corporation – and Britain’s pension funds ride to the rescue atop shiny new trains the impact is going to be neither immediate nor effective for the 1,000,000+ unemployed young people. Credit easing might be effective at shaking out a few billion more for business, but it’s not going to be transformative. Targeting millions for investment in SMEs has some promise but with so little money behind it we’re not going to see a significant dent in the unemployment statistics.

Ultimately, the Chancellor is doing what he can. And, despite the noises off before, during, and most likely after the Autumn Statement, Labour would not be doing things much differently. Taxes cannot be much higher than they are now without a serious impact on competitiveness, and the national credit card is far past maxed out.

That leaves the Chancellor trying to kick-start a £1.7tn economy with a package that will shake out to being worth less than £100bn. The Americans as a ratio of GDP spent almost treble that and they remain trapped in anaemic growth. I say this as a devoted Keynesian; this is a problem Britain cannot spend herself out of.

We’ve had a decade of Potemkin growth fuelled almost entirely by credit, and now the time has come to pay the piper. The deleveraging must be done but it must be done whilst protecting the most vulnerable in society.

This is not just altruism talking – although altruism frankly ought to be enough. No-one in Britain has become wealthy in isolation. The richest Britons make use of the workforce that the rest of the country pays to educate, they transport goods on the roads the rest of us pay to pave and they are safe in doing those things thanks to the police force the rest of us pay to patrol.

Ultimately, the Chancellor has done what little he could be faced with typhoon-strength economic headwinds. There is no silver bullet, and whilst I disagree with some of the decisions around the edges of today’s Statement – the climate change language was frankly a sop to the Tory back benches – I agree with the intent behind it; I have no choice, it’s the only game in town.

 

* Ben Norman works on financial policy at Cicero Consulting.

The Independent View‘ is a slot on Lib Dem Voice which allows those from beyond the party to contribute to debates we believe are of interest to LDV’s readers. Please email [email protected] if you are interested in contributing.

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30 Comments

  • Tony Dawson 29th Nov '11 - 6:44pm

    George Osborne today was a victim of his own arrogance. I predicted on numerous occasions that he’d be hard-pressed to deliver Labour’s deficit reduction targets, let alone his own, and this seems to be just about the present situation. Had he not been so OTT when he came in, he would have been in a much better position to defend himself against Ed Balls’ heavily-rehearsed hype. Yes, Balls is a borrower who complains about borrowing. But Osborne presented him with a big fat target for a dish which those many frightened poor people who would like to pretend to themselves that there is an easy way out will tend to swallow. Especially if the target is this arrogant oligarch-matey who tries to draw credit for things the Lib Dems have forced him to do and somehow just cannot carry these off with any sincerity.

  • Keith Browning 29th Nov '11 - 7:17pm

    Here are some suggestions that the government won’t tell you because it will hurt their friends in the City. These are the people whose only acknowledgment of these financial problems is to change their Ferrari every 2 years instead of every year.

    Spend your money with local businesses rather than with multinationals, which makes use of the ‘local money multiplier’ effect.

    Cut the number and distance of your journeys to keep the money out of the oil companies’ pockets, and spend some of the money you save on buying local products.

    Visit neighbours who you think might be struggling to cope. Chances are you can help in some way and they might even reciprocate.

    Set up local community self-help groups, perhaps at street or village level. You can’t rely on the ‘government’ or its ‘council lackies’ any more, so people need to take a totally fresh approach to their own welfare and those of their family, friends and neighbours.

    Become as self-sufficient as possible in this ‘state controlled’ world.

    Do all this and the country will be financially stronger and you might reach the end of the tunnel with some degree of respectability.

  • “The bond markets are currently a ravenous pack of hyenas …even the slightest hint of weakness on Britain’s part will draw their perilous attention our way.”

    This sentence suggests to me you haven’t the faintest idea about what the bond markets are, let alone details such as who and in what proportion the owners of British govt debt are, etc.

  • The blunt reality is that the private sector has not been able to fill the the economic gaps because consumers have tightened their purse strings. Borrowing is up because the government is having to fill the void , but is still stuck in mind set that sees direct tax on high earners as a very bad thing. The argument that we can’t do much with Tax because it will make us less competetive is becoming an oxymoron. We don’t need to be competetive we need to be more self-reliant. Even if we could technically compete with China ,the market isn’t there because we are the market.! Low average earnings here simply means people buy less, not that we sell more interrnationally. High prices are only a problem if average incomes are low.

  • Tony Dawson 29th Nov '11 - 9:49pm

    Geoffrey, growth is not much use if all it involves net is the consumption of increasing amounts of goods and services from abroad which you cannot pay for because you are making nothing they want to buy . Unless, of course, you can persuade your creditors to write off or write down your debt.

  • We are enduring a ratchet effect – austerity begets low growth which wrecks the borrowing figures, the government then tries a fresh round of austerity which further depresses growth, and so on.

    How will putting hundreds of thousands more public sector employees out of work help demand on our high streets or cut welfare bills?

    As for the “greenest government ever” pledge, that looks like a joke now.

  • Can you really not see the difference between the UK, a sovereign nation with our own currency, and Italy/Greece who use the Euro?

    I really don’t understand people who write things about bond market vigilantes or who compare the ability of the UK to raise money on the markets with the southern European nations without understanding even the basics of it.

    Osbourne might like to boast of our low borrowing costs – and to say it is a sign of strength when in reality we are buying our own bonds which has driven down the price.

  • Stephen Donnelly 29th Nov '11 - 10:26pm

    @Geoffrey. Do you really believe that “The very strategy that is meant to make us borrow less has caused growth to flatline”. Do you not think other factors may have been involved ?

  • Newsnight 29th November 2011

    Paxman – So you going into the next election promising further billions of pounds cuts in public spending. That is what you going to say in your manifesto for the next election.

    Alexander – I’m afraid so yes

    Paxman – I thought your promise was that in the last year of this government you would not necessarily be giving unequivocal endorsement to every government policy

    Alexander – Well, as a government we originally as you said earlier set out plans that would meet our targets a year earlier in 2014-15. Because of the way in which economic circumstances have deteriorated we need to make this commitment for future years so yes Lib Dems and Conservatives will work together in government to set out plans for those following two years and of course we will both be committed to delivering them.

    Paxman – So what’s the point of voting for you as opposed to the Conservatives then?

    No comment.

  • Andrew Thomas 29th Nov '11 - 11:21pm

    I am so ashamed that our party is signed up to this. As a public sector worker who is on strike tomorrow, its another kick in the teeth that we and my wife are both seeing our pay fall even further behind the cost of living. We’ve already had pay freezes that are in effect pay cuts and we are really struggling now.

    Its clear that the deep cuts have slowed the economy down and to blame any of this on the eurozone which happened later is misleading. I never thought I’d see the day with Lib Dem ministers so signed up to the unpleasant ways of the Tory Party. Its so sad. How do we get our party back?

  • Old Codger Chris 30th Nov '11 - 12:19am

    How do we get our party back? Good question by Andrew Thomas.

    Labour’s credibility is shot – I doubt if another Labour government will be elected for generations. As the country slowly and painfully recovers so the Lib Dems must assert their differences from the Tories. It’s Tories v Lib Dems from now on – failing that it will just be Tories (including some Orange Book Lib Dems).

    And let’s be truly honest with the voters. We’re not always right (don’t mention the Euro).

  • Simon Bamonte 30th Nov '11 - 12:25am

    It is just depressing to see the government continuing to put the brunt of the cuts onto the shoulders of the public sector, the future and current unemployed, and other vulnerable groups. Why are we continuing to resist any proper reform of the city? We are willing to let pensioners freeze out of some fear these rich will “go elsewhere”? I’d say it is time to call their bluff, but the Coalition has decided the holy rich are untouchable. I don’t want to share a country in which people who are already incredibly well-off would leave the country if their taxes were raised even a few percentage points, taxes which could save the lives of some aforementioned pensioners. Oh and why are we not shutting down their tax havens? Why are we not prosecuting more tax cheats?

    @peebee:

    I saw that myself as well as hints on Channel 4 News that both the Tories and us have signed up to some sort of spending agreement for post 2015 and my jaw dropped. What is going on? Who is asking us, Lib Dem members & supporters, what we want?

    I echo @Andrew Thomas: how do we get our party back?

  • “It’s Tories v Lib Dems from now on”

    No its not. The Lib Dems are completely shot as a an electoral option. The facilitation of a nasty right wing Tory government means that we are now an utter irrelevance to the voters. See Paxman’s comment above. Almost nobody left of the centre retains any faith in the party or leadership. Hardly anybody to the right will opt for Lib Dem over Tory. I see annihilation at the ballot box.

  • Bill le Breton 30th Nov '11 - 8:52am

    The public admission that the Coalition will agree expenditure plans for a number of years after the probable date for the next election is nothing but the next inevitable step towards a coupon election.

  • To clarify the above:

    http://www.historylearningsite.co.uk/1918_coupon_election.htm

    Bill le Breton may sadly be right. However, it isn’t inevitable, if Lib Dems can make a philosophical breakthrough, and discover the existence of free will.

    All governments have to plan ahead of the next election. Remember ex-Chancellor Ken Clarke in 1997, dumbfounded that his Labour successor had stuck to the future financial plans he had drawn up on the back of a fag packet? The only thing that’s changed since then has been that they don’t use fag packets any more.

    However, those who would like the Coalition to ossify into a permanent relationship of Lib Dem subservience to the Tories will no doubt aim to make use of future budget planning as an ossification tool.

    Do Lib Dems still believe in freedom of thought and action?

  • Old Codger Chris 30th Nov '11 - 2:54pm

    I agree with David Allen. This could pan out one of 2 ways, a reasonably strong, independent Lib Dem party or a split between Tory-supporting “National” Liberals and the rest, which might finally kill the party.

    simon may be right about annihilation at the ballot box but the country needs a credible opposition. How credible are the 2 Eds looking? Does anyone believe things would be truly better right now if we had a Labour government? I predict a Labour retreat to its heartlands in 2015 – more humiliating than 1983 because those heartlands no longer include Scotland.

  • “Taxes cannot be much higher than they are now”

    Umm – not true. Taxes on high earners accompanied by savage tax avoidance prevention could raise a lot more money.

  • ROB SHEFFIELD 30th Nov '11 - 7:16pm

    Dave Page

    “The Tories, Lib Dems and Labour went into the 2010 General Election all committed to taking action to reduce the deficit. How is it different if the Tories and Lib Dems go into the 2015 General Election committed to further reducing it?”

    The difference is that- unless Nick walks this back- you’ll have the economic chapter of your manifesto written by George Osborne and it will be the highly inspiring “stay the course- only two more years of abject misery to come”.

    Your economic manifesto will have to be identical to the Tories- were the three parties manifestos identical at the last ejection ?!

    Have you read the IFS analysis of this joint Tory-Lib Dem autumn statement ? To summarise: child poverty up households income down bulk of pain felt by the 30% at the bottom of the income scale. This will make it a straight contest between Labour and Tories and even sitting Lib Dems outside of your marginals will be at risk.

    Which is why the ITN political correspondent (Alex Forrest) has tweeted this afternoon:

    “Simon hughes tells me lib dems are ‘clearly concerned’ over 2 year extension of govt cuts given coalition agreement only lasts until 2015.”

    “Meanwhile lib dem lord @oakeshottm tells me party signed a 5 year deal with Tories not 7 and mustn’t look like ‘chained’ to them.”

    Honouring the two years after the next election is going to prove to be the shortest suicide note in political history.

    Pure hubris.

  • ROB SHEFFIELD 30th Nov '11 - 7:39pm
  • ROB SHEFFIELD 30th Nov '11 - 7:49pm

    “That was an extraordinary thing for Danny Alexander to say and begs the question of whether he had discussed it in advance with Nick Clegg”

    “Not only will that limit the Lib Dems’ room for manoeuvre when it comes to differentiating themselves from the Tories in 2015″

    “it will make it almost impossible for them to enter into a post-election pact with the Labour Party in the event of a hung Parliament.”

    “It’s tantamount to announcing – though Danny Alexander may not have been aware of this – that the Lib Dems will be joined at the hip to the Tories for longer than the duration of this Parliament.”

    “It’s hard to imagine that Alexander was speaking on behalf of all the senior members of his party, including Vince Cable.”

    “one of the unexpected bonuses of the Chancellor’s revision of his deficit reduction plan is that it has effectively lashed the Lib Dems to the mast”

  • Just watched the Jeremy Paxman Interview with Danny Alexander and I got to admit I was pretty Gob Smacked to say the least.,

    I recall 6 months ago at the height of all the local elections, Cameron & Clegg et al said they would allow more disagreements on policy to be aired publicly between the coalition partners in order for the public to be able to distinguish differences between the parties so the public can see that coalition does work and the smaller4 party is not being railroaded into submission.

    Danny Alexanders performance on News night just proved what a load of old waffle that was. He was totally adamant in not revealing “any” differences between the conservatives and the Liberal Democrats on the Autumn Spending Review and revealing even 1 Policy area where the Liberal Democrats had influenced over a Tory policy.

    Paxman had Alexander on the back foot when Danny revealed that the Tories and the Liberals where signed up to £30 Billion Pounds worth of cuts in the next parliament. As Paxman pointed out, “IF” Tories and Liberal Democrats have already agreed on this manifesto commitment for the next parliament, what is the point of voting lib Dem?

    I am sorry, but these baffoons who are controlling your party are destroying your futures and Identity as a political party. Something needs to be done and needs to be done quick, The clock is ticking and 2015 will be here sooner than you think

  • Simon Bamonte 1st Dec '11 - 12:19am

    matt: “I am sorry, but these baffoons who are controlling your party are destroying your futures and Identity as a political party. Something needs to be done and needs to be done quick, The clock is ticking and 2015 will be here sooner than you think”

    If the Coalition’s economic plans fail, then that makes the whole Coalition pointless in the end. The entire idea of coalition was sold to us based on the negativity of markets, bond holders and big corporations towards our deficit. The hyperbole was ramped up & we were told we were the new Greece, even though it was nothing of the sort. However, to claim as many do that the Coalition has an economic mandate is disingenuous. Clegg/Alexander only told us of their economic conversion after the election, so people voted for us based largely on our manifesto and campaign, and rightly so! I know I and most of my friends did as well. A convincing case could be made for the fact that, with Labour’s 29% of the vote and our share of 23%, a majority of the public voted for a slower, less deep cutting of the deficit. Only 36.1% of the nation voted outright Tory. Those who run and have influence in the party since Clegg became Leader are a small group who, apart from many minor differences, agree with the Tory neoliberal, Thatcherism-Blairism “consensus” that is actually no such thing among the British people, which also just happens to be crumbling to bits around us. And soon I bet it will want more: more job losses, more cuts, more pain for everyone but those at the top. We are offering nothing new to the electorate, whereas our manifesto and campaign did. I still maintain we had a choice and we, sadly, have taken the worst of all bad options.

    Now the IFS is reporting that the Autumn Statement, again, hits the poorest the most. We are also alienating a large section of our own electorate (along with several others) in the public sector with these pension reforms. If we either do not change direction or leave the coalition, there may be no voters willing to even listen to us again. We’ve lost the centre-left & social democrats, many public sector workers, Scotland & most of the North, disabled people, the unemployed and students. Who is going to vote for us now? It’ll be straight Labour vs. Tory which will be another death blow to our decaying democracy. We are shedding and willingly casting our natural supporters aside. Dark times indeed.

  • Simon Bamonte 1st Dec '11 - 12:20am

    Oh, matt, by the way I wasn’t saying you claimed the Coalition had an economic mandate, but rather should have said that they claim it themselves. 🙂

  • Matthew Huntbach 1st Dec '11 - 1:37pm

    Simon Bamonte

    A convincing case could be made for the fact that, with Labour’s 29% of the vote and our share of 23%, a majority of the public voted for a slower, less deep cutting of the deficit. Only 36.1% of the nation voted outright Tory.

    Yes – it COULD have been made before May 2011. It cannot be made now because when the public were asked to do they wish to change the electoral system away from one which gives the Tories so much power on just 36% of the vote they voted – by an overwhelming majority – “NO”.

    Sorry, the “No” campaign was quite explicit about this – they defended the current electoral system on the grounds that the distortion it gave in favour of the largest party and against third parties was a good thing because it led to more “decisive” government. We do, indeed, have a decisive government now, it has chosen the way it will solve this country’s economic problems very decisively. Anyone who didn’t like this ought to have voted for electoral reform in May.

    Even the slight reform that is AV would have changed the balance enough ion 2010 to make a Labour-LibDem coalition viable. But the people of this country voted against even that slight reform. Given that the “No” victory is being interpreted by every commentator as ending the case for any electoral reform, and that the no-one in the “No” campaign was using the line “AV is a reform that does not go far enough”, I cannot interpret the victory for “No” in any other way but this – the people were asked “Do you want the party with the most votes to dominate even when it has well below half the actual votes?” and by two-to-one they replied “Yes”. So, less than a year ago, the people of this country voted two-to-one in favour of the government we have now.

  • Matthew Huntbach 1st Dec '11 - 1:47pm

    Andrew Thomas

    I am so ashamed that our party is signed up to this.

    It is not. It has supported what the people voted for in May 2010 and in May 2011. The resulting government may not be what the party would do if it had won a majority, but it did not. Democracy means you accept what the people say they wanted even if you do not agree with it. Ministers of a very-much-junior partner in a coalition government can have only a small influence on the main thrust of that government. As I have just said, if the people of this country did not like what their votes and their electoral system gave them they had the opportunity to change it, but they decided not to.

    Figures in our party who are government ministers are in an awkward position, I accept that, they cannot come out in straight opposition to the broad thrust of this government. One thing we might pick up from this is that perhaps the position of leader of the party nationally and leader of the party’s Parliamentary group ought not necessarily be combined. Still, we are a democratic party, so just because its leader airs some view does not mean that is the party’s official view. If someone who is not a leader of the party, just an MP who has been appointed government minister, airs a view, well that is his view, he’s entitled to it but it does not mean the rest of the party has agreed to it.

  • Simon Bamonte 1st Dec '11 - 4:41pm

    Here’s a pretty decent article on why, paradoxically, our austerity is not only causing a rising deficit, and will continue to do so: http://krugman.blogs.nytimes.com/2011/11/30/bleeding-britain/

    I’m afraid it looks as if we are committing national suicide for everyone apart from those at the top. I really worry for the future..

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