So now we have had the final Conservative-Liberal annual budget before the UK general election in May. The Chancellor (finance minister) George Osborne waxed ecstatic in parliament that under his tutelage, the UK economy was the fastest growing in the G7 and in Europe and had created more jobs than anywhere else.
He announced a few more ‘goodies’ supposedly for the poorer income earners, namely an increase in the allowance before people start paying income tax. This would take another 200,000 people out of paying tax by April 2017, but he failed to mention that these non-income tax payers would still be paying social security contributions even when they earning no more than £11,000 ($15,000) a year. And there were already up to 5 million workers who earn so little that this increase in allowance would gain them nothing. Indeed, most of the cost to the government budget from the increase will go to richer families with two incomes above the allowance.
The government is now forecasting that the UK economy will grow 2.5% this year and 2.3% each year in the next parliament up to 2020. On this assumption, the Conservative chancellor has reduced the austerity spending cuts that he previously planned over the next five years. Even so, the government still plans to cut department services by £13bn and welfare benefits for the poorest and disabled by £12bn. And richer savers will get a reduction in tax rate on their interest. What the government plans to do is actually increase austerity up to 2018-19, sell another £20bn of public assets (bank shares) next year and then make “the biggest increase in real spending for a decade in 2019-20” – just before the next election!
As the independent Office for Budget Responsibility (OBR) puts it in its budget report
cdn.budgetresponsibility.independent.gov.uk/March2015EFO_18-03-webv1.pdf,
“the Government is on track to meet its new fiscal mandate with £16.8 billion to spare. This implies a 65 per cent probability of success given the accuracy of past forecasts. Achieving the mandate with this margin depends heavily on cuts in public spending – particularly on public services and administration – implied by the first two years of the Government’s medium-term spending policy assumption.”
But can we expect these growth targets to be reached, with 65% confidence as the OBR reckons, after the performance of the UK economy in the last five years under the coalition? The FT newspaper spelt out what was expected back then and what happened (www.ft.com/cms/s/0/2da09f02-cbe3-11e4-aeb5-00144feab7de.html#axzz3Uk5bE037)? The forecast was for real GDP growth of 2.7% a year up to 2015. Instead, there was no growth at all in 2011 and 2012. The level of GDP is still 5% lower today than the 2010 forecast.
Unemployment fell more quickly than expected as companies kept on labour but stopped any wage rises (and reduced wages and conditions in some cases), increasing employment in part-time, casual and so-called ‘zero hours’ contracts. So private sector employment eventually went up (public sector employment has been decimated), but real GDP did not so much. So output per worker fell and then stagnated. Productivity growth was non-existent throughout George Osborne’s period as chancellor.
Full article here:
thenextrecession.wordpress.com/2015/03/18/uk-budget-osborne-blowing-in-the-wind/