Sunday, 3 April 2016

George Osborne just broke another unwanted record

In the fourth quarter of 2015 the UK recorded it's worst ever current account deficit figures since quarterly recording began in 1955. The gap between wealth flowing in and out of the UK swelled to a £32.7 billion deficit for the quarter, which is equivalent to 7% of GDP.

For the entire year of 2015 the current account deficit was £96.2 billion, which is 5.2% of UK GDP, the worst since annual reporting began in 1948.  

The budget deficit
The Tories have spent the last six years trying to convince the public that the size of a government's budget deficit is the single over-riding priority when it comes to economic sustainability. It's undeniable that the Tories have attempted to fixate as much public attention as possible on the size of the budget deficit in order to provide some kind of pseudo-economic justification for their ideological austerity agenda, whilst criminally neglecting the importance of other vital economic indicators like the current account deficit, balance of trade, GDP per capita and productivity.

It doesn't even matter to them that they spectacularly failed to keep their promise to eliminate the budget deficit by 2015, they simply set about repeating the mantra "we've cut the deficit by a third" to re-brand their epic failure as a boastworthy success, then moved the goalposts to elimination of the budget deficit by 2020!

Even though they utterly failed to achieve what they said they were going to achieve, the Tories still want you to think about the budget deficit as if it is the single most important economic indicator, one that massively over-rides every other measure of economic health.

The current account deficit

Image credit: Guardian
Stuff like the balance of trade and the current account deficit used to be quite high profile measures of economic success, but since the 1980s they have fallen out of favour, not because they don't tell us anything important about the state of the UK economy, but because both sets of figures have been unrelentingly bad for decades that no governing party in their right minds would ever want to draw public attention to them.

While other countries like Germany, Japan and China have all successfully managed to export more than they import for sustained periods over the last four decades, the UK has almost constantly imported more than it has exported.

Even though their New Labour predecessors oversaw the continued weakening of the UK balance of trade and current account balance, the successive Tory led governments since 2010 have set one record after another for the worst balance of trade on record and have just set the worst current account deficit in history. Even analysis in the rabidly pro-Tory Daily Telegraph admits that the UK current account deficit has widened significantly every single year since 2011.

What the future holds

There are lots of factors to consider when it comes to considering the future, but two issues stand out.

The first has been picked up by much of the mainstream media, which is the fear that "Brexit" would cause a rapid divestment from the UK causing an even worse current account deficit than the current monstrosity. It's hard to take financial market futurology too seriously given that the vast majority of economists completely failed to see the vast 2007-08 global financial sector insolvency crisis coming, but one thing is for sure - financial markets don't tend to react well to uncertainty. It's impossible to say what the long-term effects of "Brexit" would be, but the massive uncertainty over what a post-EU British economy would actually look like would be highly likely to cause some serious short-term financial instability and divestment verging on outright capital flight at the very least.

A second concern that is particularly topical is that David Cameron and the Tories seem determined to sacrifice the UK steel industry as a tribute their "special relationship" with the Chinese*. The further destruction of the UK steel industry would make the UK will be even more heavily reliant upon steel imports, worsening the UK balance of trade even more, and negatively impacting future UK current account deficits.


One of the core Tory propaganda narratives in favour of their ideological austerity agenda has been repetition of "living within our means". Even if George Osborne hadn't completely failed to eliminate the budget deficit by 2015 like he promised to (racking up more new debt than every Labour government in history in the process), it's pretty damned hard to reconcile the development of the biggest ever deficit in wealth flowing out of the UK economy with the endlessly repeated Tory "living within our means" mantra isn't it?

Still, the popularity of the right-wing folk mythology that the Tories are economically competent doesn't look like it will be going away any time soon, despite the overwhelming evidence that it's glaringly counter-factual gibberish. So we'll all have to put up with hearing about what a great job the Tories have been doing, even though there is an ever deepening chasm full of evidence of their record breaking failures.

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* = The Tories are so determined to kill the British steel industry that they actively voted down an EU proposal to allow higher import tariffs on dumped Chinese steel (like the United States have done to protect their own steel industry) and were "thanked" for their loyalty to Chinese economic interests when China slapped a 46% import tariff on Welsh steel products!

George Osborne's 2016 budget of failure
The pre-election "contract with the electorate" that the Tories want you to forget
The Tory plan to force privatise every school in England

What does George Osborne have to do to deserve the sack?
How the mainstream media frame the political debate
How on earth do people think George Osborne is a genius?
Austerity is a con
Margaret Thatcher's toxic neoliberal legacies

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