“Budget 2009: Building Britain’s future” was the title of Wednesday’s budget report, published by the UK government. But on what will this future be built?
This year’s UK budget was highly constrained and in the circumstances the Chancellor was probably wise in not trying to do too much. But did he try to do anything at all? Was he himself constrained by the conventions of budget-day theatre, the display, as of some holy relic, of Mr Gladstone’s red briefcase to the fervent masses (of photographers), the Father-Christmas-like handing out of treats, the priestly intonation of all the areas where Britain is or will be world class, the pantomime exchanges in parliament?
Away from the festivities, the news is bad: the UK government forecasts that public sector net debt (PSND) will rise to 79% of GDP by 2013-14. This figure depends critically on public sector net borrowing falling from 12.4% of GDP in the current year to 5.5% in 2013-14, and this in turn depends on forecasts of real GDP growth of 1% in 2010-11 and 3.25% in each of the three fiscal years 2011-12 to 2013-14 – forecasts that many commentators believe to be wildly optimistic. PSND may easily top 100% of GDP.
What will happen about this indebtedness? There is no point in the next 4 years in which the annual budget is anywhere near balanced. There is no plan to repay the rising national debt. There will be no serious cuts in public spending other than a few “Efficiency Savings.” A populist tax hike for high earners will yield, in the context, a trivial amount of money. It is not assumed that indebtedness will be cancelled out by inflation, since that is forecast, perhaps optimistically too, to remain under 4%.
This takes us back to the fears of Professor Willem Buiter, expressed on oD and repeatedly in his Maverecon blog, that UK politics means that the UK government cannot credibly declare an intention either to reduce public spending or to increase taxes in order to reduce debt. If inflation is held in check, the only recourse that remains is insolvency. Who then will bail out the bailer?
It looks as if we may be getting to this point. Mr Darling was not prepared to announce serious pain for anyone, now or in the future. When invited by BBC’s Today programme on 23 April to say whether he would applaud a perhaps Tory Chancellor who raised taxes or cut spending in four years’ time in order to pay back today’s debt (a clever question, of course), he merely said it was all very uncertain and hoped the case wouldn’t arise. Beyond 2013 his and the government’s refuge amounts to saying: “We don’t know where we’ll be so we won’t make any plans.” This means they have no idea whether the debt can ever be repaid, and on this abdication I think Prof. Buiter is too easy on the Chancellor.
The opposition is in a better position, but they are cautious. If they win the next general election they will, with some justice, blame today’s government for creating the mess that necessitates unpleasant measures. But they will not announce those measures now because they want to win that election, and probably assume the government will wait as long as possible – maybe another year – before going to the country. Who knows whether they will announce them after the election? They have a chance of being more credible than the government, but they must grasp the moment.
The misinformation and evasion about the UK’s economic prospects by all politicians hopeful of winning office is striking. What social need is addressed by it? In a military campaign the truth is sometimes hidden in order to secure a greater collective good, but that is surely the exception that proves the rule that misinformation is generally bad. Doctors have stopped lying to the dying: do politicians think of themselves as old-fashioned doctors to the patient electorate, an electorate that cannot bear to hear the truth? Perhaps it’s less rational than that. I don’t believe most politicians are liars, even though what they say is often untrue. The capacity for people – politicians, CEOs, dictators – in isolated positions to delude themselves is almost limitless. Whatever the reason, it must be time for politicians, commentators, and the media generally to reinstate rigorous truthfulness at the core of public policy discussion.
These wider political constraints – in the short term the election and in the longer term the inability of leaders to come clean with the led – means the UK’s fiscal policy is on hold for at least the next year. Jam today and jam tomorrow. Quite what kind of jam we’ll be in is anyone’s guess but the Chancellor’s. Crackers, anyone?