Deficit reduction plan disappears into La La Land – Flip Chart Fairy Tales

[Image: Gaianeconomics]

[Image: Gaianeconomics]

If you weren’t thinking this before the Autumn Statement, you should be doing so now. Here’s the lowdown, courtesy of Flip Chart Fairy Tales:

Yesterday, what was left of the government’s deficit reduction plan moved even further into the realms of fantasy.

In its latest Economic and fiscal outlook, the Office for Budget Responsibility reduced its forecast for tax receipts over the rest of the decade.

[T]his year has seen a sharp fall in the amount of tax raised for every pound of measured economic activity. As a result, despite strong economic growth, the budget deficit is expected to fall by only £6.3 billion this year to £91.3 billion, around half the decline we expected in March. That would be the second smallest year-on-year reduction since its peak in 2009-10, despite this being the strongest year for GDP growth.

And so:

[O]ur forecast for public sector current receipts is lower across the forecast period compared with March. Receipts are £7.0 billion lower in 2014-15 and £25.1 billion lower in 2018-19.

Because:

The key reasons for the deterioration in the underlying forecast are:

  • income tax and NICs, where lower earnings more than outweigh higher employment growth to reduce receipts. Lower interest rates through the forecast also reduce tax on savings income;
  • VAT receipts, where weaker consumer spending and steeper falls in government procurement associated with implied falls in DEL spending reduce growth in the tax base;
  • UK oil and gas revenues, which are lower due to lower oil and gas prices;
  • tobacco receipts, which have been lower-than-expected this year and we have assumed a steeper fall in clearances over the forecast period;
  • capital gains tax receipts, which are expected to be lower due to lower equity prices; and
  • interest and dividend receipts, due to lower interest rates reducing returns on the government’s stock of financial assets.

The result is that the outlook for public finances has worsened. Add in the government’s plans to reduce public spending and things start to look very bad for public services.

The problem is that some services are ring-fenced – health, education, social care for example – meaning increasingly less is available for others, but there is no strategy for closing services down. So deficit reduction would have to go out of the window.

But this is only because George Osborne’s plan has been such a dismal failure. Vox Political has said it many times: You can’t build economic growth by cutting the amount of money available. And it doesn’t take an economics degree to prove that this is a stupid idea from the start.

It was Osborne’s only idea.

He never really wanted to cut the deficit; he only ever wanted to cut the state. Cutting the deficit was an excuse he found he could use easily to distract voters who were gullible enough to believe him. If that was you, try not to be offended at this blog for saying it – be angry at Osborne for exploiting you.

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4 thoughts on “Deficit reduction plan disappears into La La Land – Flip Chart Fairy Tales

  1. ladyfreebird750

    Be angry, be horrified but never be silent. Savage cuts today mean hardship and suffering tomorrow and the next day and the next for the most vulnerable. Where are these cuts going to hit? Already resources are stretched to screaming point.

    How much more before they snap altogether?

  2. hstorm

    All of this is forcing desperate people to take out inappropriate loans instead, to cover the loss of funds or resources they previously received via the state. But with wages stagnant, they won’t be able to pay the loans back, and so the banks will choke again.

    It’s the same old story; if you remove the public sector deficit, you simply create deficits in the private and consumer sectors. The shortfall won’t cease to be there. Best to keep it in the public sector where it can be guided far better, especially with the Central Bank on-hand controlling the money supply.

  3. Pension60

    Austerity has not happened because welfare reform is the cause of raised national debt, by the billions spent on benefits admin and IT failed projects. Even The Times has said welfare reform is actually putting the nation deeper in debt, yet leaving more and more people, in or out of work, in penniless starvation.

    1. Mr.Angry

      Absolutely spot on, it appears IDS can spend what he likes on appeal after appeal and another appeal even though they are rejected, but he does not like being told he is wrong. Sheer arrogance and a display of vanity.

      Same with Osborne spending millions trying to secure bankers bonuses through the EU courts, total disgrace whilst people forced to use food banks. Endless waste.

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