Britain’s government budget released this week is not a statement of economic policy. It is a program for winning next year’s general election.
In this sense, Chancellor of the Exchequer George Osborne’s speech was a natural development from the 2013 Budget, which launched Britain’s current economic recovery. I was one of the few analysts to perceive the remarkable transformation of the British economy that immediately resulted from last year’s budget because what Osborne did was deliberately obscured by what he said.
Osborne’s mantra last year was “you can’t cure debt with more debt.” Yet he did precisely that with his audacious plan to provide $198 billion (£120 billion) in government guarantees for additional mortgage borrowing.
After labelling his speech as a “Budget for Savers” and declaring “Britain has for decades borrowed too much and saved too little,” the most powerful fiscal measures Osborne announced were designed to reduce savings, mainly by encouraging pensioners to dip into their pension funds to finance consumption. As a result, the budget forecasts, which Osborne did not mention, predict that Britain’s savings rate will fall from 7.2 percent in 2012 to 3.3 percent by 2018.