Grow Faster, Go Further

Growth is anaemic, that much of the Balls critique is true, the cause is not the government’s spending cuts, they are a mere 1% of GDP. Osborne has made mistakes, hiking VAT hit the High Street by taking money out of the real economy whereas QE at the moment only puts money into high finance money markets. Back in June the IMF issued a report recommending

“…tax cuts are faster to implement and more credibly temporary than expenditure shifts and should be targeted to investment, low-income households, or job creation to increase their multipliers… Simultaneous adoption of deeper long-run entitlement reform would be desirable to safeguard fiscal sustainability and market confidence…”

It also pointed out that

“The level of public spending as a percentage of GDP in our forecast has reduced by about half a per cent of GDP as compared to the previous fiscal year. However, it remains very far above the pre-crisis levels of spending and represents a long-term high in spending. It’s important to maintain that perspective”

Plan B, the Balls plan for bankruptcy and bond market collapse, is for higher taxes and more spending, this can be dismissed. Osborne is right when he says the international bond markets would crucify Britain if he switched to Plan B, for as Jeff Randall points out this morning

“At the moment, the Chancellor is pulling off a brilliant confidence trick: persuading the markets that Britain remains a triple-A credit, able to borrow on the same terms as Germany, while managing an economy with an inflation rate 66% higher than the eurozone’s average, and a national debt that is forecast to hit £1.32 trillion in 2015, nearly 40% greater than today.”

Tricky. Gordon Brown inherited an economy in a sweet spot and left an economy drowning in debt, Osborne believes he must bear down on the deficit to keep the confidence of the bond markets. Yet a paper produced by Dr Tim Morgan of bond brokers Tullett Prebon argues that if the government is going to miss its deficit reduction target anyway, what option would placate the bond markets more?

  1. “Britain has missed its deficit target because growth hasn’t happened”
  2. “Britain has missed its deficit target because the government failed to cut spending sufficiently”
  3. “Britain has missed its deficit target because taxes have been cut in pursuit of growth”

We’re currently in the first situation, the second situation is unpalatable to the government, the LibDems don’t have the stomach for a shock doctrine style short term austerity programme. Balls advocates stimulus in the form of higher spending, no one in government is advocating the alternative, which is to stimulate the economy by cutting taxes instead. Of course if we also rolled back government spending there would be more room for tax cuts to boost consumer confidence and the economy, without matching spending cuts the deficit will rise. Osborne is going to miss his deficit target regardless of which option he takes, it wouldn’t scare the bond market so much if cut taxes in pursuit of growth…




Tip offs: 0709 284 0531
team@Order-order.com

Quote of the Day

Michael Gove to the Commons on Trident:

“The unilateralists opposite complaining today are in the position of eunuchs complaining about the cost of Viagra.”

Guidogram: Sign up

Subscribe to the most succinct 7 days a week daily email read by thousands of Westminster insiders.

Facebook

Corbynista Stoke Candidate Rails Against PLP Corbynista Stoke Candidate Rails Against PLP
Government Trident Spin Misfires Government Trident Spin Misfires
TfL Told Khan he Could Freeze All Fares TfL Told Khan he Could Freeze All Fares
Watch: Jez Called “S***” on Train Watch: Jez Called “S***” on Train
Watch: May Refuses to Answer Trident Questions Four Times Watch: May Refuses to Answer Trident Questions Four Times
FULL-LENGTH TRUMP INAUGURATION SPEECH FULL-LENGTH TRUMP INAUGURATION SPEECH
Farage Hired by Fox News Farage Hired by Fox News
UKIP Announce Nuttall for Stoke UKIP Announce Nuttall for Stoke
Osborne Buries BlackRock News Osborne Buries BlackRock News
UKIP Out-NHS Labour in Copeland UKIP Out-NHS Labour in Copeland
Labour Copeland Candidate’s Son is True Lad Labour Copeland Candidate’s Son is True Lad
Govt Cancels Carbon Capture Govt Cancels Carbon Capture
Seamus Officially Leaves Guardian Seamus Officially Leaves Guardian
Article 50 Splits Shadow Cabinet Article 50 Splits Shadow Cabinet
Revenge Porn Momentum Candidate Quits Revenge Porn Momentum Candidate Quits
Red Len’s Hospitality Hypocrisy Red Len’s Hospitality Hypocrisy
Momentum Man is Porn Baron Momentum Man is Porn Baron
PMQs Sketch – Labour MPs Googling Museum Directorships PMQs Sketch – Labour MPs Googling Museum Directorships
NEC Fudges Danczuk Decision NEC Fudges Danczuk Decision