UK policy rhetoric flies in the face of reality
By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
When words and actions don’t match up, the problem is usually overly ambitious promises. In the debate on economic policy in the UK, the failure is in the present – the government’s description of fiscal and monetary policy flies in the face of reality.
Prime Minster David Cameron frequently repeats his commitment to fiscal austerity, most recently after weak GDP numbers led critics within his government to call for more stimulus. But as a share of GDP, the UK’s fiscal deficit in 2012 was already the fourth highest in the European Union. If the governments of Spain, Ireland and Greece live up to their austere plans – and the relatively lax UK lives down to its projection of a higher deficit – Britain will lead the pack this year, according to European Commission forecasts.
The budget that George Osborne, the Chancellor of the Exchequer, will publish on March 20 may be austere by some standards, including that of the pre-crisis British government. But the projected deficit will be remarkably high for a country theoretically committed to fiscal balance.
On the monetary side, Osborne is all for being more aggressive. He has done nothing to dampen speculation that Mark Carney was chosen as the next governor of the Bank of England because the Canadian is open to bold new ideas, such as new, more inflation-welcoming targets. But, again, the UK’s large quantitative-easing programme already puts it close to the front of the global race to push the most money into the economy.
With the central bank already so generous, the monetary plans which tempt Osborne and Carney look more incremental than radical. They are unlikely to have much effect on output or unemployment.
The government’s unrealistic rhetoric muddies the policy debate. The commitment to pseudo-fiscal austerity and mock-monetary radicalism are distractions from the real challenges: to reduce a smothering debt burden and address many structural weaknesses. Most economists think the former will take years, and the latter decades. But if the government could accept current reality, it would be more likely to find better plans for the future.