THE BLOG

Budget 2016: Chaos Reigns

16/03/2016 14:53 GMT | Updated 17/03/2017 09:12 GMT

George Osborne is right about one thing: the British economy is sailing dangerously close to another recession, insofar as it is likely to be swept up in the ever-increasing turmoil present within the global economy (of which Brexit, a headwind of the Conservative Party's own making, is a key dimension). It may result in the economic depression that Britain and the rest of the world only narrowly avoided after the financial crisis of 2008.

Yet he is entirely wrong to prescribe yet more austerity as the only way for Britain to mitigate the next crisis. In fact, the coalition and Conservative governments' decimation of the public sector, and reliance on regressive and largely ineffective monetary policy stimuli, is probably the main reason that, when the crisis hits, it will hit Britain harder than most. The British economy remains far too dependent on the housing market and finance sector, both of which are volatile at the best of times, let alone the worst. Today's budget had little of substance to say about Britain's productivity problem, despite reporting significant downwards revisions to productivity growth forecasts.

It is doubtful of course that even a full-on embrace of Keynesianism can save us now. It is a highly unlikely scenario anyway, given that Osborne has staked his reputation on the idea that the budget deficit is an inherently bad thing, and that only he can be trusted to tackle it. Government debt is George Osborne's raison d'etre - which explains why he has been so content, contrary to what he would like us to believe, to create so much of it. The budget announced that debt will remain close to 80 per cent of GDP by 2020 ; in 2010 he told us it would have fallen to 70 per cent by 2015.

Austerity has always been a political agenda, not an economic necessity. Increasingly, however, as the wider political objectives of austerity around undermining the idea of the state and inculcating self-sufficiency at the individual level are achieved, the continuation of austerity seems to be driven now purely by Osborne's own political ambitions.

Today's budget saw Osborne focus on another of his pet projects, the Northern Powerhouse. While he announced various infrastructure projects in the North, in an attempt to put some flesh on the bones of this skeletal programme, overall the budget further reveals that the Northern Powerhouse agenda is rather hollow.

Firstly, the infrastructure spending announced is not necessarily new or additional investment. Obviously, governments spend money on upgrading infrastructure all the time. The genius of Osborne is such that he has fetishised a handful of fairly limited infrastructure projects - the kind of projects that are undertaken as a matter of routine in similar economies in North America, Western Europe and East Asia - in order to generate yet more photo-ops of Osborne adorning a hard hat and hi-vis jacket. But he is able to get away with this precisely because he has far so long starved most of the country of much-needed investment.

Secondly, virtually all of the major infrastructure projects announced today are connected to the Manchester city-region, representing a reward for the civic leaders in Greater Manchester most loyally toeing the Osborne line on the Northern Powerhouse. It is surely no coincidence that Osborne's own constituency is in Greater Manchester. His indifference to Yorkshire was revealed earlier this week in the memoirs of former coalition minister David Laws, who reported on how easy it was for Nick Clegg to convince Osborne to prioritise Sheffield (where Clegg's constituency is) within the early Northern Powerhouse agenda, at the expense of Leeds.

Of course, the bigger picture is that London and the South East remain, by an enormous margin, the main recipients of government infrastructure investment. Divide and rule is alive and well.

Thirdly, the budget advances the Conservative quest to undermine local government in England, even as local government leaders are being encouraged to embrace the Northern Powerhouse agenda and the new expectation to produce above-average growth.

The budget announced that local authorities are to lose in entirety their responsibilities for primary and secondary education by 2022 (as many, perversely, take on more responsibility for further education), with all schools set to become academies, and therefore autonomous from local government. The drive to devolve healthcare provision to the local level might seem to suggest a counter-trend, yet in its current form, being taken forward by Greater Manchester, NHS decentralisation seems to involve devolution of all of the responsibilities for delivering healthcare to local authorities, with none of the powers needed for deciding how services should be designed. The agenda is in practice merely another step towards the marketisation of the NHS, occurring in tandem with efforts among local authorities to outsource more and more of their core functions.

Osborne today announced top-down cuts to business rates, barely mentioning that revenue from rates is set to become a key source of local authorities' income as central grants are increasingly withdrawn. Allowing local authorities to keep the revenue from business rates, but micro-managing the terms upon which it can be raised, is phoney decentralisation at its worst.

These changes come on the back of the government allowing councils to spend more on adult social care services at the 2015 autumn statement, plugging care budgets that have been severely depleted, but only if they are prepared to raise council tax in order to fund the additional spending.

In my view, care services, which have already been thoroughly outsourced, should be funded by taxation, but the problem is that council tax is a highly regressive tax - which explains why Osborne is so fond of it. The budget announced significant income tax cuts for middle- and high-earners, as well as deepening cuts to corporation tax and capital gains tax, at the same time as raising and creating more regressive taxes by stealth, such as the insurance premium tax and the new sugar levy (assuming it is passed on to consumers).

Budget 2012 will be recorded by history as the 'omnishambles' budget, after Ed Miliband latched onto negative headlines around the 'pasty tax' proposal. Labour's current leader lacks the political nous to deliver a similarly memorable critique. Yet it is now clearer than ever that British economic policy is characterised by chaos, caught between propping up a failing austerity agenda and supporting the political ambitions of a Chancellor for whom the failure of austerity is not an option.