AT least David Cameron was right about one thing: money doesn’t grow on trees. The rest of his speech on the economy was tragically disappointing, signalling that he isn’t for turning from the present course of endless, gradual spending cuts, private sector austerity, cheap money and a reliance on fiddly interventions to support credit and housing. There were no hints of a new approach, no realisation that shock and awe policies to boost the UK’s competitiveness are desperately needed, no understanding that the current mix isn’t working.
Until yesterday, there was still some hope the Budget may contain radical ideas to save this government from itself; now even that last glimmer of hope lies extinguished. It is unclear whether the Quad – the men who run the government including Cameron, George Osborne, Nick Clegg and Danny Alexander – actually believe their plan is working, whether they are too divided to change it, whether the Lib Dems are the issue, or whether the chancellor and Prime Minister themselves are content with the social-democratic, stagnant, almost neo-Brownite status quo. Whatever it is, the outcome is a tragic wasted opportunity for which ordinary folk across the country will pay the price in reduced growth, limited opportunities and falling living standards, and which will eventually usher in a Labour government, with even more disastrous consequences.
Cameron was at pains to distance himself as much from his Keynesian critics who want more spending, as from his free-market, supply-side critics, who want to slash marginal taxes to boost incentives, tear up regulations to allow shale gas expansion, housebuilding and infrastructure projects financed privately, and cut spending faster. There were references to Margaret Thatcher, chosen to suggest she didn’t believe in “unfunded tax cuts”. This, of course, is a caricature of the supply-side position. Thatcher understood that the only way to create growth was to liberate the private sector by increasing its incentives to invest, work and save.
Cameron agreed that “there are times when you can cut a tax and find it almost pays for itself” but the only one he could identify was the 50p tax rate, which won’t reduce revenues when it is cut to 45p next month. He didn’t mention capital gains tax, for example, which would almost certainly bring in more money if its rate was trimmed. For Cameron, the only option is either the status quo or unfunded tax cuts; there was no mention of cutting faster, for example, and no recognition that the coalition is happy to spend lots on the public sector in an unfunded fashion as it stands.
The rest of the speech was, in the main, just as bad. The analysis of the crisis was poor. There was no mention of the Bank of England’s role in fuelling credit with its low interest rates; or that of Western under-saving and Eastern over-saving; or of the moral hazard from implicit state guarantees; or even of sub-prime. It was, apparently, merely unprompted errors from UK banks. He panned Labour’s fiscal profligacy – but let us never forget he matched Gordon Brown’s spending plans during the bubble. He is right that competitiveness deteriorated under Brown – but improvements since then have been marginal. Cameron’s speech was better than anything the Labour party could have come up with, but that isn’t good enough. This government believes that pump priming the economy with more cheap money is the answer and that Mark Carney will save the coalition from economic failure. It isn’t – and he won’t. I despair.
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