The facts have changed but George Osborne has failed to change his mind. Our economy is set to grow at less than a quarter of the rate he previously predicted it would and by the time of the next election will likely remain smaller than before the financial crash. The great British economic experiment has shown that expansionary fiscal contraction does not exist but the chancellor carries on regardless.
The result is that Osborne has resorted to complex sleight-of-hand to keep the borrowing numbers down (a negligible £100m fall only possible as a result of reallocation of departmental underspends, with the big picture numbers showing borrowing failing to come down) as the impacts of our dire economic outlook continue to hit households hard.
The chancellor at least acknowledged the need to boost capital budgets – but the only new spending announced won’t appear until 2015-16. At £3bn a year it will have a minimal impact on growth, and, given spending in this area is already down by over £20bn, and will have fallen even further by the time the new money arrives, it will be far too little, too late. Many voices are calling for stimulus now – even this month’s Economist makes the case for an immediate doubling of infrastructure investment – but the chancellor has ignored them all.
There was also little of substance on living standards. While we learnt that the Office for Budget Responsibility now expects real wages to fall even further in 2013, and to stagnate rather than recover the year after, the chancellor’s big policy to help squeezed household budgets is an inefficient use of scarce funds. Increasing the personal allowance helps those on higher incomes more than those lower down the distribution, and goes nowhere near offsetting the impacts of his earlier VAT rise and tax credit cuts. This costly measure is a poorly targeted way to help hard-pressed families.
There was some recognition of the need to address longer the longer-term economic challenges we face. The government’s acceptance of many of the Heseltine reviews’ recommendations, and with them an implicit acceptance of the role that industrial policy has to play in supporting strategic sector and slowly rebalancing our economy, was welcome, as was the increased support with energy costs for the ceramics industry. The priority given to childcare funding was also important – increasing support in this area will be vital if employment rates are to rise in the years ahead. Tweaking the Bank of England’s remit is probably a good first step in the right direction, although the chancellor is kidding himself if he thinks monetary policy can offset the impact of his extreme fiscal squeeze.
But in other areas there is a worrying lack of commitment. Long-term youth unemployment places those who experience it at significant risk of scarring effects including poorer health and lower incomes for years into the future, bringing significant costs both for individuals and for society as a whole. But no results have yet been published on the performance of the DWP’s flagship Youth Contract scheme, presumably because of its failure to achieve any success. Investing in young people should have been a priority – but although youth unemployment levels are up 48,000 on the quarter the million young jobseekers in this position didn’t even get a mention. The fact that the ILO unemployment rate will barely fall between 2012 and 2016 has hardly been remarked upon.
Overall this was a budget that will do nothing, as the OBR say, for the growth that the economy desperately needs. Over 2.5 million people remain out of work, real wages keep falling and borrowing isn’t even going down. The chancellor’s plan has failed and across the UK it’s working people who are paying the price.
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Nicola Smith is head of economic and social affairs at the TUC. She tweets @NicolaTUC