Budget myths and the phoney war

The budget was every bit as swingeing as anticipated, but with the effects abstract and only likely to be felt in the winter and next spring, it was difficult to get too worked up about the announced measures.

What was very irritating was the way in which blatant lies were asserted as fact, or the skimpiest of fig-leaves given the status of a 3 piece wool suit as the Lib Dem members of the coalition desperately tried to convince themselves that black was actually white.

Annoying myths:
1. That this was the 'unavoidable budget' - a myth based on other myths:

• The 'budget deficit was much worse than expected' has frequently been asserted and used to justify both the immediate need for cuts, and for this so-called 'emergency budget'.  Yet the official borrowing totals have twice revised down since the election, and the budget report included confirmation that the borrowing totals were less than predicted in the spring budget.
• Irresponsible spending by Labour in their last few months in office had left 'black-holes' in the countries finances, with Ministers making almost daily claims of new information on the finances that 'proved' things were much worse than they had feared. In fact, there was no new information - it had all been available prior to the election in the Treasury Red book. 
• Labour was doing nothing to reduce the deficit - Cameron asserted both during the election and as recently as his statements in the House following the budget.  This is wrong, and Cameron must know it is wrong and therefore it should be described as a lie.  The last Labour budget set out a deficit reduction plan that involved substantial cuts in public spending.
• The lib-dems are fond of pointing to the  'sovereign debt' crisis triggered in Greece as new circumstances justifying their change to support for early swingeing cuts.  Britain is no Greece in either the totals or structure of its deficit.  To the extent that 'market confidence' is important, however,  a far bigger influence in undermining confidence must surely arise from the Government's own dire statements and trashing of the UK financial situation. The hysterical doom-mongering as to how much worse things were can only have undermined already nervous markets.  After all the talk, there had to be action, - so a self-fulfilling prophecy was generated.

2. That this is a 'progressive' budget - progressive has a very specific meaning for economists and means that the wealthier you are the proportionally more you have lost out through the budget.   The Lib-dems especially have clung to a few measures that were introduced to argue that the budget was 'tough, but fair' thanks to their influence.  A couple of measures - the rise in tax allowances, protection of child tax credit and the rise in CGT, are unlikely to have been implemented were it not for the coalition agreement.  None, however, were that substantial and were much less than the lib dems had campaigned for.  They were also more than cancelled out by other business friendly tax changes, such as reducing Corporation Tax.  In return they had to swallow the VAT 'bombshell' they had rightly campaigned against because of its disproportionate impact on people the lower down the income scale they are.  The problem in claiming the budget as 'progressive' and the VAT rise as unavoidable is succinctly explained in a Telegraph Online article:

"The Institute for Fiscal Studies, the respected economic think-tank, has dismissed claims by Mr Clegg that the rise was “unavoidable”. It said it would not have been needed if George Osborne had not cut other taxes on businesses.


Asked whether the move was regressive, Mr Cable said: “In some respects it is.” However he insisted: “If you look at the package as a whole that makes the balance much better and more equitable.”"

3. That this is 'Labours mess' that they are having to clear up. A prime example of the collective brain erasure that has forgotten the banking crisis, who caused it and how the deficit was incurred both to shore up the banking system and to prevent the economy from going into meltdown.  The siren voices calling loudest for cuts are those responsible for the original crisis and, as if to prove the inherent contradictions within capitalism, seem determined to reward themselves whilst screwing the economy.

The budget, with its attack on useful public spending and the welfare system whilst also cutting taxes for business is a kind of nationalisation of the bonus culture.  Just as the short-termism of bankers bonuses led to the financial manipulation of derivatives and ultimately the crisis,  then so will the short-termism of this budget (and the other European 'austerity' measures) also lead to an economic crisis.

There is one positive thing to say about all this - it is very much a 'kill or cure' approach after which there can be no excuses for the economic nonsense that underpins the current austerity fetishism.  A small up tick in unemployment (say 1 - 200k)  followed by growth and recovery and the think tanks will prove to have been right.  On the other hand, a double-dip and a steady increase in unemployment and their lunacy will be exposed.  There is one more possibility that some economists have touted - a Japanese style long period of stagnation in which the economy bumps along with no growth.  Even this stagnation  model will require a moderation of the fiscal stance of this bunch of economic neanderthals, and the economists (such as Will Hutton) who have predicted it do so on the basis that the Government will be forced to moderate their cuts programme.  In this scenario, faced with reality the cuts  of 25 - 33% in departmental spending will be quietly moderated.  Of course, anticipating this the right of the Tory Party (the Daily Mail lobby) are arguing for bigger cuts in welfare payments and against the guarantees on health spending.