George Osborne is sacrificing growth now for the prize of a low-tax economy.
By Samuel Dale
The chancellor of the exchequer has condemned Britain to a low-growth economy because, not in spite of, ideology and his long-term aim of a smaller state.
The Conservative party and 'Orange Book' Liberals are seizing this golden opportunity to make permanent cuts to public spending. By blaming the previous Labour government the coalition is exploiting the political environment of debt worries to push through its ideology. Any cut is unavoidable and any spending commitment is portrayed as ludicrously irresponsible. This caricature of the coalition is allowing the Tories and Liberal Democrats to cut back Labour spending of the last 13 years.
Nobody is denying the seriousness of the fiscal deficit, which is clearly unacceptable and unsustainable, but the doomsday vision of the coalition goes far beyond this.
The Budget cuts will cause a huge hike in unemployment next year as the public sector loses at least 600,000 jobs. With an economy growing at 0.3% at the start of the year, and largely supported by government help, it is hard to see the private sector sweeping up these jobs as hoped.
These losses will lead to higher benefit costs, lower tax receipts, less consumer spending and lower growth. It is highly optimistic to believe relatively strong growth of 2.6% can occur in the face of these cutbacks. Short-term economic pain is seen as a price worth paying for the realisation of the small state vision.
Chairman Alan Budd has again been forced to defend the integrity and independence of the Office of Budget Responsibility, which predicted 2.6% growth in 2011. But it is hard to view its forecasts as accurate when the International Monetary Fund downgraded Britain's growth forecast to 2.1% after Osborne's emergency Budget. When it is the same Treasury officials drawing up the figures at the OBR it is little wonder the credibility gap is still a factor.
With slowed growth, the driving force behind cuts is not economic recovery or reducing the deficit but an ideology to reduce the size of the state. If and when the deficit is gone and tax receipts flow in with greater value it is hard to imagine Osborne calling for major public investment. He will use the post-deficit 'wealth' to slash taxes and it is this thought that is driving him to cut as deep as possible now.
It may sound conspiratorial. But it is surely a natural aim for the small-state Liberals and low tax Tories running the coalition and normal for politicians to exploit circumstance to fulfil their vision.
This is what the 'big society' really means: the coalition's reason for cutting hard and fast now is mired in small-state ideology rather than short-term economic needs.
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