The Budget Stupid


Jonathan Swift wrote that his abiding memory of reading a book, no matter how stuped or wise, was the character and personality of the writer. The Pre-Budget Report which sets the stage for George Osborne’s Budget on Tuesday is a case in point. What was it? Well, Sir Alan Budd, an immensely experienced insider and economic forecaster, tweaked the Treasury econonmic forecast on which the Labour Government, of blessed memory, relied upon for its budget deficit reduction proposals. The resulting forecast did not  substantiate Boy George’s allegation that the Treasury under Labour falsified the books, which was always an insulting allegation, but rather that economic forecasiting is an art not a science and we all paint differently. Budd is the first to accept that at this moment all forecasting is risky and the range of variables  frighteningly wide. But he is paid to take a different view, and he did his best to err on caution. However, arguably, his version of the Treasury forecast is more volatile than the original. For example, he chooses to rely on money market views of future nterest rates and therefore on current expectations rather than  judgements about the future. A dispasionate vew of the Treasury forecast is that it overstates the deficit which is likely to come down faster than it has forecast. We can see that happening as we watch: from an inital Government estimate of £171 billion for the year 2010/2011 a few months ago  it stands now at £155 billion a reduction of £16 billion. If nothing at all was done at all in the current year, NO BUDGET, and all our efforts were directed to  ecouraging and assisting enterprises and people the deficit would be likely to go lower without further stimulus or restraint. Neutral is good. Our Dave  describes such a policy as ‘hoping for the best’. What else would any sane man wish for? On the judgement of Boy George (God help us!) the Government will stay afloat or sink. It will take a little time to establish the direction. But what is reasonably certain is that Alan Budd (if he is asked to prepare a report on the impact of the Government changes to his PBR and I am not certain that he will be asked) can measure the impact on employment, revenue and expenditure and thus the deficit itself. An outsider could make a decent stab at this – I could do it – but for comparison purposes the Treasury model needs to be used. If Boy George’s budget does what is rumoured it will do, there is a distinct and credible possibility that British taxpayers and consumers will behave in a way that will surprise George. The deficit will not come down as he directs us to believe. There will be considerable economic and social disturbance and many personal disasters on the flight path, the plane may never reach the chosen landing strip, and may come to grief among the trees.

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