Budget day cheer is here again

March 19, 2013

By Laurence Copeland. The opinions expressed are his own.

Budget Day again, and the pressure on Chancellor George Osborne is rising ominously. There is little agreement about what needs to be done, but complete agreement that something has to change because the state of Britain’s economy is simply awful.

Yet just look at the facts in the table below (all the data are taken from Eurostat, the EU’s own statistical agency). For the latest quarter, the UK economy contracted by 0.3 percent – but France’s performance was just as dismal, Germany’s economy shrank by twice as much, as did the euro zone as a whole. Only the USA achieved a significantly better outcome, a dazzling growth rate of zero  – but at least it didn’t shrink. Year-on-year (Y-O-Y, as the pros call it), the picture is even clearer. Britain’s economic growth, a miserable 0.3 percent, was not significantly lower than Germany’s, but better than France’s minus-0.3 percent, or indeed the euro zone as a whole, which was down by 0.9 percent. Only the USA grew to any significant extent – and there are signs that it may now be starting to slow down, even before the impact of the fiscal cliff and the sequester are felt.

What about unemployment?

You would never know it from the BBC, but the story is more or less the same. Our unemployment rate is lower than anyone else’s except Germany. Moreover, unlike in previous recessions, the low unemployment rate is certainly not due to discouraged workers dropping out of the labour force, because the number of people employed in Britain has actually grown over the last few years, thanks to the fact that the private sector has been hoovering up workers released by the public sector.

GDP

unemployment

  current  account

latest

Y-O-Y

%

%

%

% of GDP

UK

-0.3

0.3

7.7

-4.2

FRANCE

-0.3

-0.3

10.6

-1.6

GERMANY

-0.6

0.4

5.3

6.2

EURO ZONE

-0.6

-0.9

11.9

EU

-0.5

-0.6

10.8

USA

0.0

1.6

7.9

-2.8

 

The facts can be summarised in two famous quotations, appropriately twisted.

First, Britain has the worst-performing economy, apart from all the others, and secondly, all successful European economies are alike, whereas each unsuccessful economy is unsuccessful in its own way.

In Britain’s case, our big failures are poor export competitiveness and over-consumption, which is precisely why we need austerity. Our relatively high growth rate is driven by domestic demand, as is clear from the fact that our saving rate, which had almost fallen to zero before the 2008 crash, is now up to about 7 percent  – but that is still less than half the rate in France and Germany.

And we should never forget that our budget deficit is higher than any other large economy – in fact, bigger than almost any West European country except Greece. Moreover, the independent watchdog, the Office for Budget Responsibility, is forecasting that, on current fiscal policy settings, neither our deficit nor the level of our national debt will have shrunk much by 2015 – and all the OBR’s forecasts so far have turned out to be over-optimistic!

So: should the Chancellor relax austerity and spend even more? My answer is: certainly not.

I can see no reason to suppose more spending will do anything, other than increase our demand for imports even further, leaving us with even more debt than we have now. Worst of all, we would run the risk of a catastrophic bond market crisis which would leave us crippled by higher interest rates and locked into a vicious circle of printing money to pay our debts, leading to more inflation and even higher interest rates.

What we need instead is a package of supply-side measures to restore long term competitiveness: reducing fuel prices, cutting personal and corporate taxes and making our labour markets more flexible, defying Brussels where necessary – for example over the crass limits on working hours.

All of the above need to be matched by spending cuts. The U-turn we really need is to end the ring-fencing of spending on the NHS and international aid, most of which is a complete waste of taxpayers’ money. Continuing to feed these sacred cows means that the rest of the herd has to be starved half to death, with the result that our transport infrastructure will remain a national embarrassment, our education system will continue to decline and our defence will be reduced to a minimal nuclear deterrent supplementing armed forces of a scale more appropriate to a country the size of Denmark or New Zealand.

Of course, what I am advocating is an agenda which Sir Humphrey would have called “courageous”, so if you ask me what I expect the Chancellor will actually do on Wednesday, the answer is: not much, other than some tinkering, hopefully  producing another comedy cock-up like the pastie-tax to keep us all entertained.

All of which means I am not at all optimistic about the future of the British economy.

So, in the unlikely event there are any young people reading this for guidance, my advice is simple: emigrate to America or Canada, if you can stand the cold, or better still to Australia or New Zealand.

And to the old, the long term sick and disabled, the unemployed  – take advantage of the relative generosity of the welfare state while you can, but bear in mind… it won’t last forever. Can you survive its collapse? As my mum used to say: it’s being so cheerful that keeps me going.

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