George Osborne's deficit reduction plan: a blunt axe, blindly wielded

Vision

Chancellor George Osborne that the economy is in trouble with a record deficit of £ 14 billion in August

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plans are divided into three categories. There are good plans that are poorly executed, as in the model developed by Count Alfred von Schlieffen for the invasion of France in 1914. There are strategic plans are executed well bad, as in the Russian campaign of Napoleon in 1812. And then there is the plan of the coalition government to reduce the deficit.

monthly update last Friday on public finances was bleak for George Osborne and his Liberal Democrat colleague Danny Alexander. Back in the heady days of 2010, spoke of how an ambitious plan to reduce red ink splashed all books Treasury could be combined with solid growth and protecting frontline services. None of these objectives was achieved.

quality of public services has decreased due to job losses, the economy has hit the wall and, perhaps most telling of all, the gap between what the government spends and it receives taxes getting bigger, not smaller.

deficit last month was more than $ 14 billion, a slight increase over the previous year and a record for the month of August. On budget day, the chancellor said he expects the deficit to fall by more than 4% in the current year, in the first five months of 2012-13 is 21% more than 'in 2011-12. It will take a quick - and totally unlikely - the accelerated growth in the coming months to Osborne have any chance of reaching their forecasts

Most likely you will need to use his autumn statement in early December to admit that will break at least one of the rules that he himself established to control public finances when became chancellor. The goal of reducing debt as a proportion of national income at the end of this Parliament seems extravagant and given the flatlining of the economy over the last 18 months, leaving Osborne with the possibility of creating a new challenge, less burdensome, or to announce new austerity plan.

be humiliating, however, the Chancellor is almost certain to take the first option. The deficit reduction plan and involves greater austerity in 2013-14 and 2014-15 compared to the year and would be a brave Chancellor would eliminate the additional demand for an already fragile economy. The idea of ??expansionary fiscal contraction - get tough with the budget stimulates growth by allowing monetary policy to work its magic - has been a fiasco. Why? Because the banking system is broken and the debt are not interested in taking on more debt, no matter how much interest rates fall. Osborne and the Office for Budget Responsibility (OBR) have significantly overestimated the power of monetary policy to continue to adjust fiscal policy would result in an even lower growth targets and state budget even more difficult achieve.

Osborne
• back into defense used by all Chancellor since time immemorial: the fault abroad. If it was not for the sovereign debt crisis in the euro area, rising oil prices and the weakness of the global economy, for example, everything would be wonderful for the moment. There was nothing wrong with this plan. It was a great plan. It was, indeed, the only plan that could save Britain from the dystopia of Greek debt. It was just that other complicated issues.
• Sir Mervyn King provides the chancellor with some political cover in turn. The Governor of the Bank of England says it will be ok for the government to miss its target, as long as the debt is the result of external factors and not because their deficit smooth death itself. Since the king had four-square behind the austerity Osborne from the beginning and used the same defense of bank records overestimate and underestimate the growth of inflation, their support is surprising but welcome if it prevents Osborne compose their own mistakes.
• While it is true that the administration of public finance work leaves much to be desired before the Great Depression of 2007 and that any government facing a budget deficit of 11% of the national production is necessary to take measures to balance the books, the truth is that the plan was ill-conceived Osborne, hastily prepared, based on optimistic forecasts and perform that amplify the pain felt by the public.

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deficiencies are explored by Brian A Reading from Lombard Street Research paper entitled Blunt Axe. The title is a reference to Geddes Axe called the program of deep spending cuts imposed in the 1920s, after a thorough analysis of the savings could be realized.

Reading assessment focus

Osborne was scathing, saying he has failed miserably to achieve the coalition "urgent priority to ensure economic stability in a period of continued uncertainty in the global economy . "In particular, the document says it has not sought to assess the impact on the growth of spending cuts, the government is hiding behind" optimistic forecasts "provided by the OBR, the" scorched earth " investment in more expensive prestige projects, it has not attempted to identify the whereabouts of the taxpayers' money to be saved, not to measure the actual resources provided to departments, taking into account different rates of inflation that s 'apply to services such as health, could not protect the front-line workers (or even identify what work they did), and it is intended for the inevitable cuts in the public sector, 372,000 that the first two years are nearly six times higher than the 66,000 estimated by the OBR.

Play concluded that there was no need for Plan A for wild growth. The coalition, he said, would have significantly increased capital expenditures without breaking its own fiscal rules. However, net capital expenditure in 2014-15 is forecast to be nearly 60% lower than it was five years ago. This is not a new phenomenon. Governments of all colors is always easier to reduce capital expenditures for current expenses, despite the long (and often short) term consequences for the economy.
is not convinced by reading the argument that everything that can be attributed to events across the Channel. "The deterioration of the global environment and the collapse of the euro night certainly the British economy, but it was predictable. OBR was complicit in the persistence of granting graduations despite darkening sky." Request new Geddes Commission, concludes: "The ax was blunt, blind guitarist."

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