Osborne’s plans don’t add up

It seems that the budget figures don’t add up – at least not in a good way.   Some pretty horrid stuff has turned up.

Firstly, there is the strategic decision to engage in a race to the bottom with tax on big companies which I posted on last month.   The underlying logic is impeccably neoliberal – namely that everything should be subordinated to the wants of capital (read plutocrats).  This is what was originally called, “trickle down” economics.  It’s not happened to any noticeable extent yet and I advise against holding your breath while waiting for it to get going.  (What might be done about it will have to wait for another post.)

This can only put a big hole in the government’s revenues.  Tax Research UK recently published a report (pdf) estimating that companies already underpay tax to the tune of £16 billion.  Cutting staffing in HMRC and making the UK in effect a tax haven for corporate tax evaders can only make this much worse.  Moreover, what applies to large companies now will increasingly come to apply to medium-sized companies and wealthy individuals as tax advisers market their services more widely.   I gather that Premiership footballers already pay little tax on their income.

Secondly, there is the government’s own budget forecast for its revenues over the next few years included at table c6 (page 94) of the budget (pdf)  (h/t Richard Murphy).   This has government revenues increasing by a stonking average of 6.2% per annum up to 2015-2016. 

So, we have forecasts of soaring government revenues but a declining tax on corporates and wealthy individuals meaning that all the extra burden will fall on the middle.   If  it thinks it’s being squeezed now – well, it’s about to discover what being embraced by a boa constrictor feels like.

And if the squeezed middle is going to be in no position to take up the spending slack created by government cuts, who will?

The government’s answer – such as it is – comes from the Office of Budget Responsibility via Sturdyblog (h/t Richard Murphy).  He discovers that ahead of Osborne’s emergency budget last year household debt as a percentage of income was forecast to decline gently but steadily from 150% to 143% by 2014 year-end.   Ahead of last week’s budget the OBR had to revise this dramatically and they are now saying it will be 159% of household income by the end of this year rising to 173% of by end 2015.  This is a monster increase.  As he says, “In money terms, almost £500 billion is being added to MINE and YOUR personal debt. And this doesn’t even take into account the inevitable, approaching interest rate hike.”

So, Osborne glibly assumes that we will all go even deeper into dept to stop the economy stalling and make his forecasts (sort of) work.  It has to be a moot point whether people will want to borrow that much unless they have to to balance their budget or it happens involuntarily as a result of falling behind on mortgage or other payments.  But people who are falling behind are, by definition, a bad risk and it’s difficult to see banks wanting to lend.

A more likely outcome is that most people will stagger on with tightened belts.  Those who cannot stagger on for one reason or another will become, in effect, collateral damage of the banking crisis.   And, if it finishes up that the private sector is trying to save at the same time as the government sector, then there is nothing to stop the economy from stalling.

One thing is certain; neoliberalism has reached the end of the road and we need to discover a new economic paradigm fast.

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