George Osborne's 2014 budget was laughably self-congratulatory and ludicrously over-optimistic stuff (UK budgets are rarely anything but), however, essentially it was just more tinkering with a fundamentally broken system.
The actual 2014 Budget Document runs to 120 pages, so there's no way to analyse it all in one blog post. It is fair to say that not all of the policies are bad in themselves, but as a package it is a sad demonstration of economic myopia.
Aside from the headline grabbing launch of the new £1 coin (which will set the economy back tens of millions to retrofit millions of shopping trolleys, vending machines, ticket machines etc), the cut in Bingo tax and another ludicrous 1p reduction in beer duty, there are a number of more important factors to consider.
Headline Figures
I'll start by comparing some headline figures.
The press ran with the headline figures presented in the budget (such as the one boasting a marginally increased growth rates from the last set of economic predictions), but relying on the government's own cherry-picked economic indicators is feeble churnalism of the worst kind, and in my view, an overt demonstration of complicity with the agenda of the government.
If you want that kind of shallow and misleading analysis I suggest you turn to the mainstream media oligopoly for more comforting regurgitated statistics presented in an uncritical manner.
I'm going to compare the headline figures from the 2014 budget with the predictions George Osborne and the OBR paraded around in November 2010. The reason I'm comparing the current figures with some of their initial economic predictions, is that this will give a much clearer idea of what kind of job they have actually been doing for the last four years.
The 2014 Budget predicts that the nominal GDP of the entire British economy will be £1,788 billion in 2015/16, when the next General Election is held. In November 2010 they predicted that it would be £1,916 billion. That's a calculation error of £128 billion!
The 2014 Budget predicts that the debt to GDP ratio* will be 78.7% by 2015/16. In November 2010 Osborne and the OBR predicted that it would be 67.2%. This means that George Osborne will have borrowed so much more than he claimed he would, that the difference will be worth 11.5% of the entire UK economy in 2015/16!
The 2014 Budget predicts that the national debt* will total £1,439 billion. In November 2010 they predicted that by the same stage it would only be £1,232 billion. That's a mind-boggling £207 billion miscalculation. The borrowing projections that George Osborne and the OBR presented in 2010 were out by an absolutely astonishing 16.8%.
George Osborne ceaselessly bangs on about how the Tories have reduced the deficit by a third, as if that represents some kind of success. What he fails to mention is that in 2010 he was bragging that he would completely eradicate the budget deficit by the end of this parliament in 2015/16. The economic figures presented in this budget admit that the deficit will not be eradicated until 2018/19, and that's in their best case scenario in which there is no kind of economic crises in the next 4 years.
That's a miscalculation worth 4.5% of the entire economic output of the UK for the 2015/16 period!One of the things that illustrates how much of a catastrophe "Osbornomics" has been in its own terms is the admission that the UK economy will only recover to its pre-crisis level in the third quarter of 2014. Their November 2010 predictions projected that this recovery would have already happened in mid 2012! This is an astonishing miscalculation because it has taken significantly more than twice as long as Osborne and the OBR said it would for the UK to return to pre-crisis level.
These headline figures illustrate the sheer scale of George Osborne's incompetence, yet the man is so delusional that he actually seems to believe his own feeble propaganda narratives, and even sees himself as a candidate to become the next leader of the Tory party!
If borrowing £207 billion more than you claimed you would, in order to make the economy £128 billion smaller than you said it would be is some kind of success that qualifies you for a promotion in George Osborne's mind, one must wonder what on earth a failure must look like?
Workers, Savers and Pensioners
These demographic groups have suffered badly under George Osborne's catastrophic economic mismanagement, but now he's hoping that they are all so stupid that if he slings a few coins at them as pre-election bribes, they'll all flock to the polling stations in order to vote Tory.
Workers
Ordinary workers have suffered terrible wage deflation since 2010, meaning that the vast majority of people are worse off in real terms than they were in 2010. This deliberate campaign of Tory wage repression has stalled economic demand, forced hundreds of thousands of families into reliance upon social security they didn't previously claim (Tax Credits, Housing Benefits ...) and caused even greater levels of private debt accumulation.
Now Osborne seems to think that an ever-so-slightly above inflation increase in the National Minimum Wage, to £6.50, will be enough to trick "the lower orders" into feeling that they are better off, even though they will still be dramatically worse off than they were in 2010, before the Lib-Dems enabled the Tories into power.
Another part of the budget illustrates the classic Tory trick of giving with one hand, and taking away even more with the other. Extending the spending cap on social security until 2018-19 means that in-work benefits (such as Working Tax Credits, Child Tax Credits, Housing Benefit, Income Support, Statutory Sick Pay, Maternity & Paternity Pay and Child Benefit) will all continue to be cut in real terms for the next four years.
Yes, the increase in the minimum wage will give the very lowest income workers an extra few pennies an hour, but the value of that will be more than eroded away by the fact that their in-work social security payments will continue to decline rapidly in value for the next four years.
Pensioners
In 2012 the Bank of England admitted that their policy of quantitative easing has cost pension funds £270 billion. After another 18 months of all-time record low interest rates of 0.5%, the scale of the damage is likely to be a whole lot worse.
George Osborne is hoping that by allowing people to take out lump sums from their vastly reduced pension pots (in order to allow them to buy themselves Lamboghinis according to Lib Dem welfare minister Steve Webb), they'll be so overjoyed that they'll forget how much value their pension has lost since 2010.
The reduction in the rate of tax charged on bingo winnings is another blatant effort to woo the grey vote, despite the fact that these people have been totally ripped off for the last four years in order to protect the interests of the reckless speculators that actually trashed the UK economy in the first place.
Again, Osborne's pension reforms are an example of chucking a few coins at the plebs and hoping that in the excitement, they'll completely forget how much they have been ripped off over the last four years.
Savers
You don't have to be any kind of economics genius to realise how badly savers have fared after 5 years of all time record low interest rates of just 0.5%. The budget measures to triple the amount savers can avoid in tax in ISA schemes to £15,000 per year are yet another demonstration of the pre-election bribe that is worth so much less than the scale of the losses over the last four years.
VAT
One thing that was conspicuously absent from coverage of the 2014 Budget was an announcement on VAT. Surely nobody can have forgotten than in April 2010 (one month before the General Election) George Osborne Said that "our plans don't involve an increase in VAT. We say that it's wasteful spending that's cut, not putting up taxes", then in his June 2010 emergency budget (just one month after the General Election) he performed an about face (so rapid that it probably even surprised his Lib-Dem coalition partners) to hike VAT to 20%.
The fact that no reduction in VAT has been put forward in this budget shows that despite giving his word that he would not hike VAT, consumers will have been paying the higher rate of VAT for virtually the entire duration of the coalition government.
More privatisation
Tucked away in the 2014 Budget report is the announcement that £5 billion worth of public property is to be sold off. Not much detail is provided on how this land privatisation will be conducted, but it is pretty safe to assume that a similar process to the Royal Mail privatisation will be used, where the government gets several banks to estimate the value of the public assets, then picks the lowest estimate so they can sell it off at a fraction of its true value.
The Budget report also brags about how 3,846 Academy schools have been created since 2010. What millions of people fail to realise is that this has been a backdoor privatisation process of the English education system. The property deeds for those schools have been given away, for free, to unaccountable private sector pseudo-charities, many of which pay ludicrously high executive salaries to a handful of insiders, whilst the people that actually do the work of running the schools and teaching the kids suffer George Osborne's below inflation wage repression policies.
Banking
In the same week that the Bank of England admitted that the banking sector in the UK is a private money creation cartel, the 2014 Budget shows how no fundamental reform of the financial sector has been undertaken. The policies of the political establishment in Westminster and the Bank of England are aimed at protecting establishment interests (bailouts, corporation tax cuts, top rate tax cuts, new tax-dodging loopholes, quantitative easing) at the expense of the majority (through austerity, wage repression, social security cuts, mass privatisations, cuts in labour rights, attacks on the justice system). This kind of economic strategy is simply a continuation of what was going on before the global financial sector crisis and looks set to create an even bigger financial sector meltdown sometime in the future.
Policies like the further extension of George Osborne's idiotic "Help to Buy" property price inflation scam look like they have actually been specifically designed to fuel another, even larger, debt backed speculative property boom.
The comments on the taxpayer owned RBS in the 2014 Budget are an absolute joke. Just weeks after RBS announced that they had lost another £8.2 billion in 2013, meaning that they've now lost every penny of the £46 billion they received in bailouts in 2009, the Budget 2014 document concludes that RBS is "getting to grips with the problems of the past".
Despite these appalling losses, RBS bankers (who work for a company that is 82% owned by the taxpayer remember) carved up £576 million between them in bonuses for 2013. This kind of ludicrous reward for failure is yet another indicator that nothing has really changed in the financial sector.
For all of the waffle the 2014 budget contains about the reforms they have made to the financial system, most of the flaws that led to the 2007-08 global financial sector meltdown remain built into the system. The private banks still operate a debt backed money creation cartel, the housing market is still massively over-inflated and personal debt is higher than ever. What is even worse is that after the bailouts and the absolute lack of prosecutions (even over extraordinary crimes like laundering money for Mexican drug cartels and terrorist organisations, Libor rigging, and PPI fraud, let alone the reckless mismanagement that created the financial sector meltdown), Moral Hazard has been well and truly established. The banks are that they are "too big to fail", so they're certain that next time they gamble themselves into oblivion, the taxpayer will bail them out again, and they'll be able to not only avoid jail, but actually keep all of their ill-gotten gains too.
Housing
Oe of the strongest indicators that nothing at all has been learned from the financial sector meltdown is the extension of George Osborne's ludicrous Help-to-Buy property price inflation scheme until 2020.
There is one glimmer of good news, even though Help to Buy is economically illiterate lunacy, some minor changes to the scheme mean that government backed 95% finance will soon be available to fund self-build properties, which would allow small construction firms and self-builders to obtain some small benefit from this economic illiteracy, rather than the virtually all of the benefit going to massive house building companies and property speculators as it does now.
Tucked away in the financial analysis are projections that the government intends to raise another £30 billion through Right-to-Buy. Thus the erosion of social housing stock is to continue, even though waiting lists for social housing have never been longer.
What the United Kingdom desperately needs is measures to build more social and affordable housing, to control rents and properly regulate the buy-to-let sector, yet George Osborne is determined to pour more fuel on the property speculation fire, and to leave the idle rentier class (and the private banks that fund their property speculation schemes) to extract vast amounts of wealth out of the productive economy with their rent-seeking behaviour.
Flood defences & potholes
The announcement of an "extra" £140 million to fund flood defence schemes is nothing but an admission that the ideologically driven cuts to flood defence spending enacted early in the parliament were economically illiterate lunacy. Many people have (including myself) pointed out that these cuts were transparent false economies because every £1 spent on flood defences results in £8 in avoided economic damage. I have explained how fiscal multiplication is of fundamental importance to the development of rational economic policy, but George Osborne and the Tories behave as if they are as ignorant of this as they are of so many other fundamentally basic components of economic theory.
Giving back some of the money they cut in 2010-11, after all of the flooding in 2012 and early 2014 is nothing but an insult to all those that were flooded out of their homes and businesses.
Exactly the same thing can be said about potholes. The roads in the UK are in an appalling state, and when the UK was crying out for a bit of infrastructure investment, to help the fledgling recovery of 2009-10 - instead of putting in £200 million to fix potholes then, Osborne actually set about slashing infrastructure investment on the idiotic assumption that all government spending is essentially 50% waste.
Anyone that has had to replace wheels, tyres or suspension parts due to the appalling state of the roads in the last four years is unlikely to thank George Osborne for putting aside a few quid to fix the problem long after they have already shelled out to get their cars fixed.
Ludicrous economic projections
Before I conclude I'd like to focus a little attention on some truly ludicrous economic predictions, found in the section entitled "The Challenge of Debt Reduction" (pages 96-98 in the Budget report).
If we think back to the headline figures section of this article, it is absolutely clear that George Osborne and the OBR have a hugely embarrassing track record of making wildly inaccurate economic predictions. If we look at their inaccurate forecasts through the prism of of fiscal multiplication, it becomes clear that a large part of this inaccuracy stems from their use of completely arbitrary assumptions in their economic models.
With a track record like this, one would have thought they would in future try hard to avoid such lazy projections based on arbitrary assumptions, but the section I refer to contains precisely the same kind of politically partisan economic gobbledygook that they should be trying to avoid.
The part that really grates is where they use inductive reasoning to conclude that there is an economic crisis every 8 years or so, but in their economic prediction until 2035-36, they offer only two scenarios; Either no crisis at all, or a small crisis that costs something like 10% of GDP (ie. less than the 11.5% level of inaccuracy in their own economic predictions from 2010!).
If inductive reasoning provides us the dubious conclusion that is a crisis every 8 years or so, there should be at least three between the last crisis, which peaked in 2008 and 2035-36. One around 2016, one around 2024 and one around 2032.
The way that the OBR tries to get away with having just one small "illustrative crisis" is by arbitrarily picking 2019/20 (see figure B5) as the start period for their crisis cycle (rather than the last crisis in 2008). This means they can predict one small crisis somewhere around 2027/28 which is a very much more positive illustration than calibrating their one shock every 8 years illustration to the last crisis (meaning three crises between now and 2035/36), or perhaps also factoring in the consequences of another catastrophic meltdown like the last one for "illustrative purposes".
In fact the Budget Report says that the last financial sector meltdown was "a major shock, and one that would not be expected to occur very frequently". However, given that George Osborne is intent on reinflating the property price speculation bubble and the banks are still operating their private debt backed money creation cartels in an atmosphere of ludicrous bonuses and immunity from prosecution, at a time of rocketing income inequality and all-time high levels of private debt, does it not seem a little over-optimistic say that another major crisis is "not expected"?
The report admits that these projections are only "illustrative", but using two absurdly over-optimistic projections (no crisis at all in the next 21 years, or one small crisis that is smaller than their own economic miscalculations in 2010) they are clearly presenting two misleadingly optimistic scenarios. To put this into perspective, the only period of such stability in the last 150 years is the late 1940s to early 1970s mixed economy period, which is often referred to as "the golden age of capitalism". At that time the UK economy was based on state control of vital services and industries, large-scale housebuilding, wealth redistribution, social mobility and increasing wages - ie precisely the opposite of the policies George Osborne has been pursuing (privatisation, lowest housebuilding levels since the 1920s, severe social security cuts, deliberate social stratification and wage repression).
These utterly ludicrous "illustrative" shock predictions tell us absolutely nothing about the future stability of the UK economy, but what they do illustrate very clearly indeed is the political partisanship of the OBR, who have decided to present two absurdly over-optimistic projections for "illustrative purposes", rather than presenting anything resembling a likely set of illustrative predictions (several crises, another financial sector meltdown, a Japanese style "lost decade" ...) that are actually calibrated to reality (rather than some completely arbitrary point in the future).
To offer two such wildly over-optimistic "illustrative" predictions is bad enough, but their expectation of no major financial collapse is much worse, especially as this assertion was made in the same week that a NASA backed research document predicted severe global economic instability without fundamental reform to the neoclassical economic orthodoxy**, and just a few weeks after the IMF admitted that the income inequality that their own polices have ruthlessly enforced is a strong impediment to economic development and stability***.
Conclusion
The only possible conclusion from the headline figures is that Osbornomics has failed in its own terms. The fact that by 2015, Osborne will have borrowed £207 billion more than he claimed he would, yet the economy will be £128 billion smaller too is absolutely damning stuff, but you won't hear anything about this from the mainstream media.
Many of the measures in the 2014 budget can be seen as the pre-election bribes they are intended as, yet these modest pre-election gains the Tories are providing dwindle into insignificance in comparison to the huge losses the majority of people have suffered since 2010.
Perhaps the most damning thing of all is that in the very same week that the Bank of England admitted that the private banks run a money creation cartel, and a NASA backed study warned that continuation of the neoliberal economic orthodoxy threatens irreversible systemic collapse, the Tory party have once again offered no fundamental reform to the way the economic system works, in favour of shoring up the status quo, and protecting establishment interests.
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* The national debt figures are calculated using the extraordinarily misleading PSNB ex calculation, which deliberately hides the vast costs of the financial sector bailouts off balance sheet, because if they were included, the national debt would have been around 150% of GDP ever since the financial sector was rescued from insolvency with the largest state subsidies in economic history.
** The report actually used phrases like "precipitous collapse - often lasting centuries" to describe the scale of the threat, and stated that "while some members of society might raise the alarm that the system is moving towards an impending collapse and therefore advocate structural changes to society in order to avoid it, Elites and their supporters, [will oppose] making these changes"
*** Quotes from the IMF research paper: "we find that, contrary to the big trade-off hypothesis, the overall effect of redistribution is pro-growth, with the possible exception of extremely large redistributions" and "It would be a mistake to focus on growth and let inequality take care of itself, not only because inequality may be ethically undesirable but also because the resulting growth may be low and unsustainable".
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