I talked about the big picture here
and here,
but as ever there is a lot of interesting detail. Here are five
thoughts that I have not seen expressed elsewhere.
1) Tax credits. As people gradually began to twig, the U-turn on tax
credits is only temporary: most tax credits will become part of
Universal Credit when it is introduced, and the cuts there remain. As
the Resolution Foundation show,
those at the lower end of the income distribution are eventually
going to be made a lot worse off.
But it’s still a big victory for those opposed to the tax credit
cuts, for two reasons. First, a few years without the cuts are worth
having. Second, and perhaps more importantly, Osborne wanted the cuts
to come in early so that their memory would be diminished by the time
of the next election. That will no longer happen, which might mean
that when the time comes they too will be dropped/delayed.
2) Apprenticeship levy. One of the problems economists have with
budget/autumn statement commentary is incidence - it is generally
assumed that a tax on business is different from a tax on wages. But
as the OBR point
out, the evidence suggests that higher payroll taxes (‘taxes on
jobs’), which this levy essentially is, will be largely met by
firms paying lower wages. But if the Chancellor had raised the same
amount of money by increasing employees NICs, everyone would be
making much more fuss about this tax increase (particularly as he had
pledged not to do so).
One point I didn’t hear mentioned is that we used
to have an apprenticeship levy - it was abolished by Mrs. Thatcher.
3) Democracy. I’m occasionally told that I’m too critical of
this government, and some even suggested on Wednesday that this
Autumn Statement represented a move to capture the centre ground. But
the Statement included a 19% cut in money provided to opposition
parties. The Treasury said
it was “time for political parties to pull their weight in
difficult times.” I think the chief executive of the Electoral
Reform Society was nearer the mark when she said it was “bad news
for democracy”.
4) Labour. Talking of opposition, there was a lovely moment at the
end of Osborne’s speech
where he noted that Labour had suggested maybe a 10% cut in money for
police was appropriate, only to announce no cut at all. It was just one more example of how timid Labour has become. Would it have dared
increase the stamp duty on second homes/buy to let by so much? And
then of course there was the higher minimum wage in July.
I normally try to avoid watching/reading political speeches, and only
turned the TV on to see how John McDonnell performed. As I have said
before, many on the left are their own worst enemies when it comes to
the issue of political spin. They despise it, which is healthy in
itself, but they actually need to be far better at it than their
opponents because of media bias. Of course some things are so
blindingly obvious …
5) Fragile fiscal forecasts. The thing I really dislike about
occasions like this is all the emphasis on the aggregate fiscal
numbers. Some people seemed surprised that the OBR should make such a
big change to its tax take forecast, but as a one time forecaster it
did not surprise me a bit. Macro forecasts are very unreliable
anyway, and one of the hardest macro numbers to forecast is the
budget deficit. Yet people obsess over small changes to the deficit
in future years, as if this mattered. It does not.
One final comment on comments. This end of austerity meme is silly.
Here is a chart.
It is obviously right that forecasting, especially government finances, is very difficult. So we should not be surprised that OBR have a terrible record. This clearly means running the economy in line with their forecasts is a bad idea. To be fair to Osborne, when it comes to it he largely so ignores the promises he made based on earlier forecasts. But this should be a terrible warning to those who think technocratic bodies can run fiscal policy.
ReplyDeleteThe Chief Exec of the Electoral Reform Society would have more creidibility if she hadn't tried to get adopted as a Labour candidate in the election. As it is, the story is: "Labour Party member is upset about cuts to public funding of Labour Party", whatever the rights and wrongs of her case.
ReplyDeleteWhich is completely beside the point. I wrote: I think the chief executive of the Electoral Reform Society was nearer the mark when she said it was “bad news for democracy”. I did not write the chief executive of the Electoral Reform Society said it was “bad news for democracy” and therefore it must be bad. The fact that you treat this in a narrow party political way says a lot about what is wrong at the moment.
DeleteI am not treating anything in a party political way, I am pointing out that others may do so. Though I am flattered that you think that my views reflect the current political zeitgeist.
Delete@ Blenheim. Referring to your original comment, where in it might a reader get the impression that you are "pointing out that others may do so" (treat the issue in a party political way), and that it is not your own view also?
Delete@Simon: "whatever the rights and wrongs of her case"
DeleteBest ignore the bit that preceded those final few words then:
Delete"would have more creidibility if she hadn't tried to get adopted as a Labour candidate in the election. As it is, the story is: "Labour Party member is upset about cuts to public funding of Labour Party..."
Clearly a non-party political approach by yourself to her voicing concerns regarding democracy. I apologise!
The chief executive of the Electoral Reform Society's personal political ambitions would have been relevant only if Wren Lewis's argument had depended on her being a reliable authority. I think it's fair to say that it did not and that she was cited only as someone who had happened to voice a view similar to his.
DeleteThe remarks about McDonnell's performance are (understandably perhaps) a little gnomic but I'm guessing the idea is that McDonnell's Mao stunt was a kind of self-indulgent outburst which hands the other side a huge victory.
ReplyDeleteIn fact I think it worked largely as intended. Mao is a big symbolic deal to the political and media classes, and the likes of John McTernan of course immediately piled on the righteous indignation about quoting a mass murderer (seemingly forgetting his own recent - & entirely non-ironic - misattribution: labourhame.com/labour-has-to-face-up-to-its-failings/ - see also Gove's extended avowal that he wants to emulate the cultural revolution).
But no-one in the real world knows or gives a monkey's about Mao or the associaterd esoteric symbolism. But they may well be interested to hear about this government's flogging off British assets to China. And of course getting the media to mention that was the point of the stunt, and it has had some success. Which, given that opposition responses to the Autumn statement normally have the newsworthiness of a village fete, and that the media is generally pretty obstructive to the Labour leadership's attempts to get their messages across, isn't bad going.
This is, I assume and hope, the first salvo in a sustained attack on the government over this broad issue. I've personally heard Caroline Flint, of all people, pointing out that the government really should be vulnerable to attack on national security grounds for putting strategic nuclear assets in the hands of the chinese (who I believe have been shown to have hidden spyware even in mass-produced computer dongles). The issue will have further relevance and resonance should Johnson's record as London mayor come under renewed scrutiny in the next few years, given his enthusiasm for selling property to China, and the unresolved corruption allegations involved.
So I think the stunt has worked as planned - and it only looks like a crass error to people - mostly inside the Westminster bubble - who are obsessed with political positioning, signals shibboleths & taboos.
Tim you really are fooling yourself. Read this, for example.
Deletehttp://www.thesun.co.uk/sol/homepage/news/6764461/Shadow-chancellor-McDonnell-quotes-Mao-in-bizarre-Autumn-Statement-response.html
Do you honestly think that any reader will come away thinking about the Chinese financing UK nuclear power stations.
If I was a Corbyn supporter, I should be very worried that this was ever allowed to happen. When you are playing a football match where your side has two players and the other side 20, its not clever to score own goals.
I think that is exactly what McDonnell wanted and expected (and it is in all the circumstances at least not obviously the worst strategy) - he got the Sun, in the first two paragraphs, to report him:
Delete"accusing chancellor George Osborne of "sheer economic illiteracy"
"claiming public assets were being sold to the Chinese government"
and
"accus[ing] the Chancellor of selling off not just the family silver to the Chinese but the “furniture, the fixtures and the fittings.”
The next election is a long way off and could not be won by the existing 'strategy' of adopting the Conservatives' own agenda and claiming to be a bit less enthusiastic about it. Two things were clearly needed (as all cross-sections of the Labour electorate understood) - to break decisively with the previous New Labour regime, and to directly oppose the Conservative agenda, with the concomitant Overton-shift which we are already seeing (and the potential for a subsequent cosmetic 'door-in-the-face' manoeuvre).
So imagine for a moment that it makes sense (which I suspect it does) to shelve any short-run concern for McDonnell's personal image (which already has a major shortcoming). All that remains is getting some proportion of otherwise hard-to-reach readers to take in on some level the message of the three quotes given above. It has no doubt achieved that objective.
But in any case, I repeat, mention of Mao just doesn't have the resonance your average journo or politician might imagine it to have. As the Sun's need to embark on a long-winded history lesson at the end might suggest.
Election tactics are not the issue at this point. An imperfect but sugesstive coparison is with UKIP's various bizarre statements and 'gaffes'. Tha approach is to cut through the media's preference for a poll-watching Keynesian electability contest and concentrate on the prerequisite for electoral success, pushing through the message.
Ordinary people are a lot more accommodating of this kind of thing, when they choose to be, than the VSP commentariat, and a lot more savvy about the use of publicity stunts (and of already overloaded media smear tactics) than they are often given credit for. For example, I very much doubt that the shrieks of outrage from orthodox 'centrists' at Corbyn's supposedly 'cosying up' to Hamas and Hizbollah are echoed among the electorate at large.
My own instincts are with SWL, but an interesting perspective Tom. Although I am probably in 'the bubble' as you describe, I do get to talk to a range of people and their view of the opposition seems to be that they cannot be trusted to keep the country or safe and 'balance the books' (which for them means to responsibly manage the economy). And this is why many voted Tory. Recently I met both an IT worker on 40 000 pa in Reading and a taxi driver in Ashford Kent who said that Labour just irresponsibly throw money around. They all voted Tory last time. Another was a single mum in London who did not like being on benefit, but said that she earned more on benefit than she does from working - and is really struggling. She voted Tory for the first time in the last election. Very high rates of economic immigration are also a common concern (another failure of the Tories, yet nobody trusts Labour when it comes to the borders either.)
DeleteAlthough nobody wants a return to New Labour spin, they have to present themselves as a more professional operation.
Sorry to double post but the 'end of austerity' meme is actually the 'end of the austerity meme' meme. The idea being that Osborne has illustrated in a fairly eyecatching way that his spending cuts are discretionary and not dictated by an overriding need to 'deal with the deficit'.
ReplyDeleteEmployee NI contributions are increasing next April
ReplyDeleteSee Paul Lewis blog of Mon 15th Nov. for details.
Two thoughts about the OBR change in forecast receipts and thus the freedom granted to the chancellor to cut less and still meet his stated aims:
ReplyDelete1. This shows how economic growth is the key to everything. As some have been saying for a while... look after the economy and the deficit takes care of itself.
2. As S W-L has hinted the predictions are often wrong. In the case of Osborne's chancellorship, they seem to be always wrong. So I don't really believe a word of it.
http://alienfromzog.blogspot.co.uk/2015/06/osbornomics.html
AFZ
AFZ, the bottom line is that it is always the spending and saving preferences of the non-government sector, that decides what the budget deficit will be. The economy is driven by aggregate demand; there is no Say' law that says supply creates its own demand. There is no Ricardian Equivalence; in a pay-as-you-earn tax model, nobody saves up to pay a future tax bill.
DeleteThere are now so many cracks in New Keynesian models (Phillips Curve; Taylor Rule; NAIRU etc), that numerous NK author's ad-hoc applications of Polyfilla, are struggling to hold it together. I say let it die, the future is Post Keynesian and MMT. ;-) ;-) ;-) Merry Christmas.
"This shows how economic growth is the key to everything."
DeleteI'm shocked that this hasn't been picked up by the politicos and the media. Because it precisely makes Labour's point - that we should be aiming for growth rather than obsess about austerity. But then, really, we shouldn't be shocked by the continual failures of the bubble.
Any thoughts about how the OBR have changed dramatically their projections for the household deficit since their last estimate four months ago? Here are the figures from 'Economic and Fiscal Outlook - July 2015':
ReplyDeletehttp://i.imgsafe.org/3a79100.png
And here are those released to coincide with the autumn statement:
http://i.imgsafe.org/4791174.png
If Osborne is not prepared to do the borrowing then someone else is going to have to do it for him. Or am I not reading this correctly?
Looking at the 2 charts the sum of the household and corporate sectors seems very similar, the big change is the balance between them.
DeleteAlmar.
Remember they all add to zero. If the non-government sector stops spending, the government sector has up its spending to stop the economy contracting and unemployment increasing. Otherwise, we just have to stop importing stuff that we can't re-export with some value added.
Delete