The Guardian view on George Osborne’s fiscal surplus law: the Micawber delusion
|
Version 0 of 1. Viewed from Mars, or indeed from global financial markets, the biggest issue with the UK economy right now is not the government deficit. The tendency for red bottom lines in the balance of payments, uncertainty about relations with Europe, and – above all – the stubborn refusal of productivity to advance as it used to are all more worrying than a national debt that is unexceptional by international or historical standards. George Osborne’s fixation on the public finances was too obsessive in 2010, but at least he then had one serious point – those who lend to the government were watching closely to see whether a new administration would get a grip on borrowing. That is no longer true, and yet he is so keen that the deficit should remain the alpha and the omega of the economic debate that at the Mansion House he will propose a Mr Micawber law to require all future governments to balance income and expenditure, in line with the dictum of the Dickens character. Public borrowing will be banished for good – or that’s the claim. Such declaratory legislation is an unappealing habit of recent governments of both stripes. Whether it is Gordon Brown “enshrining in statute” his hopes of abolishing poverty, or David Cameron codifying campaign slogans about not raising tax, such bills squander parliamentary time to little effect. Real laws have real consequences, but that is not the case with wishlists reworked into bills. We await the details of the chancellor’s self-denying ordinance, but it is a fair bet that nobody will go to prison if it is breached, and that future governments in need of loans will be free to go to a sovereign parliament and repeal it. Elevating Mr Osborne’s pre-existing promise to run surpluses into a law is not merely superfluous but outright delusional in its presumption of control. When the deficit swelled after 2008, this was not principally because expenditure rose, but because revenue failed to come in. In 2010-11, for example, spending was £15bn up on the pre-crisis forecasts, whereas receipts fell short by £92bn as the economy crunched. The chancellor can no more guarantee that money will always come in as planned than he can meaningfully legislate for sunshine, and especially not when he is simultaneously issuing statutory promises not to raise tax rates. He may plead that there will be adjustments to smooth things out across good and bad years, but there are huge questions about how this can be judged. Economists never see big busts coming in advance, nor know how long they’ll last. The only place where the business cycle can be seen with any clarity is the rear-view mirror. Whatever the commonsensical appeal of Micawbernomics, there is no serious logic behind running permanent surpluses. Small deficits are perfectly sustainable. If national income grows by 5% annually in cash terms, as it used to, and as it would do again if Mr Osborne’s policies were working, and if the government borrows 2% of GDP each year, then – as a matter of mathematics – the national debt will gradually drift towards a manageable 40% of GDP. And, as a matter of accounting, if the government begins saving more, someone else is going to have to do the opposite. Barring a boom in exports or investment, that means more families reaching for the credit card. Is that good for Britain? That, surely, is open to doubt. But perhaps it is as well not to waste too much time interrogating potential economic rationale for the Micawber law, since it is a nakedly political move. It is not about good housekeeping but about squeezing a foot on the jugular vein of a Labour party that’s lying on the floor. While the opposition was distracted by one leadership election five years ago, Mr Osborne took his chance to blame his empty coffers on Labour’s spendthrift ways, and now – amid another leadership race – he is trying to do it again. The Labour candidates tripping over one another to confess to Labour’s (real but modest) pre-crisis overdraft will find it hard to stand against the new law. But resist it they should. Not only because it is bad economics but because it locks in a discourse in which the only legitimate direction for state expenditure is down. It is a discourse to leave the public realm reliant on the Micawberish hope that something will turn up. |