Five Easy Pieces

The strap line for the 1970 Jack Nicholson film “Five Easy Pieces” was “He Rode The Fast Lane On The Road To Nowhere. ”

That seems an accurate precis of how the Chancellor came to be giving his Autumn statement in the context of unrelenting fiscal and growth forecast doom. Mr Osborne chose to ride the fast lane to cutsville, and as we all predicted at the time, it has taken him nowhere.

Now he seems to be looking for a political solution to an economic problem. The Autumn statement was probably the least stupidly self defeating and economically retrograde of all those he has delivered. On the other hand, it may be too little too late.

Here’s Five Easy Pieces on the Autumn statement, with a inspiration from some Americana “No Depression” music:

1. Focus On the Pain, the only thing that’s real.

Having failed to hit his deficit targets, George Osborne chose to make a virtue of necessity. He backed off his fiscal limits a little, giving him a little room for manoeuvering without further cuts. But these were fiscally neutral, so the big news is that we will now have another six years of austerity. All parties will have to match their ambitions to a much less optimistic economic background.

This is what George Osborne should have done in 2010, instead of declaring victory over the forces of economic pessimism with ludicrous hopes for growth.

Now there’s a more frank assessment. We’re in a big hole, and while some of that is George Osborne’s fault, the blame is not his alone. The question isn’t pain or no pain, but how best to share it, and how to support the hard recovery.

2. Hard times ain’t going to rule my mind no more.

Within its fiscally neutral limitations, this seems a much less stupid economic and political strategy than Osborne’s previous Budgets and Statements.

Business will like the longer term investment support and corporation tax cuts, there’ll be support for fuel duty freezes and tax allowance increases, while the capital investment allowance and science budget increases are sensible.

Moat importantly, there was no obvious giveaway to the rich.  There is the shadow of a good strategy here – sacrifice from all today, for the benefit of all tomorrow. Sadly, it is only the shadow, not the substance.

3. It’s too late, baby?

The problem Osborne has is the accumulated weight of past mistakes. Now, not all of these are his. Labour people should realise that even if we had won in 2010, many of the same problems would exist. The Tories are not responsible for the Eurozone crisis, nor for the fundamental weakness of the post crash economy.

If Labour had been in charge and delivered extended VAT cuts and capital spend, GDP would be maybe one or two percent better. That’s not nothing, that’s a big old lot and would make a huge difference to thousands of families, but it is not transformative. The same core problems of the UK economy would still exist.

What Osborne does own, though is the botched response since 2010 domestically, both economically. From the 50p tax cut to undercutting demand, Osborne’s failures could well have a long term affect, both on the options for getting out of perma-recession and on the political fortunes of his party. It could be too late for both.

4. Welfare Music

The most political part of today’s budget was the decision to cap welfare increases at 1%.

I still find it incredible that last year the government chose to freeze tax credits for low paid workers while increasing benefits by 5.2% last year. Now, that balance has been reversed. Welfare payments will decline in real terms, while the low paid will get a little extra comfort through the increases tax allowance.

This isn’t really about the rewards for work. It’s about putting Labour on the spot. Labour will come under huge pressure to oppose this decision, as it will hurt the poorest in society.1 If we do, that will create a multi-billion spending commitment. If we don’t we’ll face internal division. Labour has spent a lot of effort avoiding being placed on hooks like this by making few unqualified commitments.2

5. Cause it ain’t like it was, back in those days.

The major problem for British politics is that we still have no politically workable model for the post-easy growth era. The next decade is going to be hard. For five years or more we will likely face spending restraint, increased demographic challenges, weak growth, low incomes.

The only conceivable ways to deal with this are politically painful and uncomfortable, on both left and right. Unfortunately, the dominant political mode of the moment seems to be to point ones opponents obvious weaknesses, assert airy good intentions, and to put off any uncomfortable choices internally.

I don’t think this can last.

For governments, it’s surely better to admit the scale of structural issues, and attempt to address them, rather than pretend you can solve them with a fiscal wave and hopes for growth.

For oppositions, in an era of growth, it makes sense to put off your choices until the last moment. In an era of weakness, you can’t allow yourself to get trapped by over-high expectations.

  1. Actually there’s good reason to believe it won’t. Remember a lot of those on JSA are not on the benefit for long, and can expect relatively good incomes soon. []
  2. See for example our pledges on VAT, or homebuilding, or the 50p rate, all of which have subtle, deliberate loopholes or expiry dates []

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