The second major thing wrong with today’s Autumn Statement was the usual political spin embedded in Mr Osborne’s “it weren’t me guv” plea.
According to the Chancellor, supposedly aided and abetted by the OBR, the poorer than expected economic results, and knock-on poorer than expected public finances, is all down to those rotten Continentals over in the Eurozone (EZ).
Let’s leave aside for a moment the fact that Merrs Cameron, Osborne and Clegg have been urging the EZ countries to more and more frantic austerity measures, with all the consequences for ‘death spiral’ economics we’ve seen in Greece and elsewhere.
What Mr Osborne carefully sought to side-step were the two factors for which he is much more obviously responsible: cuts and confidence.
Confidence first: for at least the first year they were in government the Coalition ran around rather like Corporal Jones in Dad’s Army shouting “Greece – Don’t Panic”. By which they meant we – the UK – were on the verge of a Greek-style crisis. This as always nonsense but it was politically expedient. The unintended consequence was to undermine business and household confidence and help to trigger the double-dip recession.
The government has so far taken just under £60bn out of public spending. This has both an objective and subjective economic effect.
Objectively it reduced demand. Originally, HM Treasury and the OBR worked on the accepted ‘leverage’ figure of 0.5 – i.e. for every £1 cut from public spending it reduced demand by 50p. But recent IMF analysis has shown that this ratio was, in current circumstances, more likely to be in excess of 1:1, perhaps as high as 1:1.7. So £60bn of cuts equals in excess of £60bn of reduced demand, or perhaps as high as over £100bn.
Subjectively, the cuts have been “front-loaded” onto Local Government especially. This has meant that in virtually every locality there has been wall-to-wall media coverage of services shutting down or under threat, of local government workers losing their jobs or having accept part-time working and reduced wages. This was essentially “austerity agitprop” almost designed to undermine confidence in the economy.
Nor is it very surprising the OBR should seek to blame someone else (e.g. the E.Z.) for the fact they’ve gotten just about every prediction about the economy and public finances substantially wrong so far – they’ve been working on mostly the same assumptions, with same model, as HMT.