The Great Debate UK
from Nicholas Wapshott:
In the nearly five years since the worst financial crash since the Great Depression, the remedy for the world’s economic doldrums has swung from full-on Keynesianism to unforgiving austerity and back.
The initial Keynesian response halted the collapse in economic activity. But it was soon met by borrowers’ remorse in the shape of paying down debt and raising taxes without delay. In the last year, full-throttle austerity has fallen out of favor with those charged with monitoring the world economy.
Christine Lagarde, managing director of the International Monetary Fund, has been urging German Chancellor Angela Merkel, who has been imposing singeing public spending cuts on her neighbors, and George Osborne, Britain’s finance minister, who has been doing the same to the Brits, to ease up. The IMF is now urging fiscal measures beyond monetary easing “to nurture a sustainable recovery and restore the resilience of the global economy.”
from Anatole Kaletsky:
The Age of Austerity is over. This is not a prediction, but a simple statement of fact. No serious policymaker anywhere in the world is trying to reduce deficits or debt any longer, and all major central banks are happy to finance more government borrowing with printed money. After Japan’s election of Prime Minister Shinzo Abe and the undeclared budgetary ceasefire in Washington that followed President Obama’s victory last year, there were just two significant hold-outs against this trend: Britain and the euro-zone. Now, the fiscal “Austerians” and “sado-monetarists” in both these economies have surrendered, albeit for very different reasons.
Much attention has been focused this week on the chaos in Cyprus. Coming after the Italian election and subsequent easing of Italy’s fiscal conditions, the overriding necessity to keep Cyprus within the euro -- and its military bases and gas supplies outside Russian control -- will almost surely mean another retreat by Germany and the European Central Bank from their excessive austerity demands. But an even more remarkable shift has occurred in Britain. The Cameron government, which embraced fiscal austerity as its main raison d’etre, was suddenly converted to the joys of debt and borrowing in this week’s budget.
By Nick Hostler, tax expert at BDO. The opinions expressed are his own.
Following the recent loss of the UK’s AAA rating, Chancellor George Osborne will be keen to show real progress and dedication towards eliminating the UK’s structural fiscal deficit, but must balance this with ensuring that the UK is a highly competitive and attractive location for multi-national businesses. The Budget should mark a watershed moment for the coalition government as Osborne, with an eye on the next general election, treads a fine line while demonstrating an understanding of the pressures faced by individuals and businesses across the country.
Whether he strikes this balance remains to be seen, but here is what I believe the Budget will have in store.
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.
By Kathleen Brooks. The opinions expressed are her own.
The title of this piece may sound like a political rant. It is not. I am probably the least political person you could meet. I am part of the generation where political apathy looms large – you won’t find me interrupting a UKIP member live on TV. In fact, my defence of Osborne is not only from his foes, but also from himself. If that hasn’t turned you off, then read on.
As we lead up to the Budget on March 20, Osborne is coming under intense pressure to do something to save the UK’s economy from a triple-dip recession. And this pressure isn’t just coming from business leaders and the opposition Labour party, it is also coming from fellow Tories, who want to have some chance of winning the next election. It could also be coming from within – Osborne’s approval ratings are dreadful, if they don’t pick up soon he could face the axe.
Following the Autumn Statement last week, pressure remains on Chancellor George Osborne to tackle the continuing fall in living standards and the growing divide between the UK’s highest and lowest earners.
While battles rage about the nature of the Government’s welfare reforms, it was refreshing to see a growing number of commentators acknowledge that it is not just those out of work that are struggling to get by. Indeed those in work will feel the greatest impact from the Government’s upcoming benefits cap, as tax credits, maternity pay and other in-work benefits are affected.
The Autumn budget is one of two scheduled statements the Chancellor gives each year to inform the public about tax and spend plans and provide the latest growth forecasts. These budget statements are useful not only for the public, but also for investors in our debt, rating agencies and global businesses. Hence they are a big deal, and it is important that they are accurate.
However, the latest statement delivered by George Osborne didn’t quite ring true. Let’s look at growth forecasts first. The Office for Budget Responsibility (OBR), who creates this forecast, revised down 2012 GDP for the second time to -0.1% from the original forecast of 0.8%. So rather than grow at a modest, but positive, rate the economy is now expected to contract this year. If you invested in the UK partly based on this data, you could be forgiven for being rather cheesed off that your investment had yet to bear fruit.
Chancellor George Osborne has weathered criticism of his economic policies from both sides of the political isle in recent months, so it was no surprise that the buzz word from his Conservative Party Conference speech was “difficult”. Life at Westminster is difficult for Osborne at the moment and it’s unlikely to get any easier.
The problem for the Chancellor is that he has staked his credibility on bringing down the UK’s deficit, yet he is also trying to be a pioneer of growth and jobs. In the current environment neither goal looks achievable.
Last night’s two big Mansion House speeches were impressive when they dealt with the macroeconomy, but depressing (if unsurprising) on the subject of reforming the banks, representing final confirmation of the gloomy conclusion of a blog I posted here in September 2009: It’s All Over – the Banks Have Won.
Of course the banks will squeal – why wouldn’t they? After all, they daren’t be seen cracking open the bubbly.
By Joe White
Delivering his second budget speech yesterday, Chancellor George Osborne revealed that he is leaving in place all of the austerity measures which will have a direct impact on the public sector. Meanwhile, there was a lot of policy aimed at supporting business and the private sector. The implicit assumption is that the private sector will take up the slack and continue to drive growth. This is the gamble, and we will have to wait and see if it works.
The government’s predictions for growth are down, and the reliance on the OBR forecasts could come back to haunt George if it starts to get worse and they continue to further revise down their independent estimates. Growth is the ultimate balancing factor for the public finances, so it is all important.