Britain’s two largest political parties are moving ever further away, when it comes to economic policy.
Last week’s budget, delivered by Chancellor George Osborne, reflected a continuing Conservative gameplan of public spending cuts until well into the next Parliament.
However, over in the Labour Party, following the election of Jeremy Corbyn MP as leader, austerity has never been more unpalatable.
George Osborne stood at the dispatch box last week, delivering a budget with forecasts provided by the independent Office for Budget Responsibility, (OBR). They augur badly for his plans for deficit reduction.
In the run-up to the budget, David Blanchflower, former member of the Bank of England Monetary Policy Committee told Westminster World that he expected the forecasts to represent “a downgrade, but still too optimistic”.
@LeftHanded_Dude downgrade but still too optimistic
— Danny Blanchflower (@D_Blanchflower) March 16, 2016
Indeed, the OBR’s forecasts were a downgrade. They pencilled in slower economic growth for the remainder of the decade.
Based on George Osborne’s spending plans, the OBR forecast that he would only just manage to balance the books by the 2019-20 financial year.
It is likely that a spell of economic growth weaker than suggested in the forecasts could postpone this surplus until after the 2020 general election.
To put this budget into perspective, it must be noted that total government expenditure is estimated at some £750bn at present. The total expenditure figure is actually expected to continue growing, despite the cuts.
One of the significant policies in the budget is the introduction of a so-called “sugar tax”, more colloquially-known as a sugar levy.
As a result of this new tax, money that would have otherwise been spent elsewhere by consumers will be collected by the government, and redistributed through extra spending on fitness in English schools.
The devolved assemblies and Parliaments of Northern Ireland, Wales and Scotland will be allowed to decide how they spend their share of the money raised by the levy.
One of the high-profile casualties of this budget was former Work and Pensions Secretary, Iain Duncan Smith, who recently resigned over proposed cuts to disability benefits. The proposals were scrapped, but Mr Duncan Smith proceeded to resign anyway.
The Chancellor can afford to scrap these cuts worth some £1.3bn, he would argue, given that it is what some might call “spare change”, compared to the aforementioned mammoth of a total expenditure budget.
Labour’s alternative to government cuts
Earlier in March, Shadow Chancellor John McDonnell gave a lecture at the London School of Economics.
Mr McDonnell used his almost 2-hour-long speech to set out Labour’s alternative plans for the British economy, but intriguingly, omitted mentioning one of his proposed policies, known as Peoples’ QE.
QE as we know it is based on the idea that, with interest rates so low, all that central banks can do is hope to increase the quantity of money in the economy, to stave off deflation. PQE is a new take on this idea.
To get a better understanding of this new policy idea from Labour, Westminster World spoke to one of its proponents, Professor Steve Keen, head of the School of Economics, History and Politics at Kingston University.
“PQE would go directly to everyone with a bank account, and should be done on a per capita basis—so everyone from me and you to Richard Branson gets the same sum of money,” he said.
Professor Keen added his own caveat to PQE; he suggested that “if a recipient has any bank debt, the amount they receive is then used to write that debt down. People without debt on the other hand…get a cash injection”.
Some might show concern for such a policy, given that everyone would be entitled to this money, and that those who already hold great wealth to begin with would be put at a greater advantage, regardless.
But Professor Keen insisted a policy of injecting cash into the economy so directly would be a far better alternative to conventional QE, saying “Conventional QE only benefits those who own assets…”.
He elaborated further, adding that under conventional QE, “Money then only spills into the actual (as opposed to financial) economy when a banker of broker spends some of the fee income or bonus income that QE generates for them”.
Professor Keen’s rationale is that PQE is far more of an all-encompassing policy, and that it doesn’t discriminate in a way that puts the poor at a disadvantage.
Professor Keen also provided an antithesis to the government’s plans for cuts, claiming that it wasn’t so much a case of surpluses being intrinsically good.
To him, the pursuit of a deficit was flawed in itself. “The fact that the Chancellor thinks running a surplus is a good idea is a sign that he…doesn’t understand money. A government surplus does not ‘save’ money – it actually destroys money…a government deficit should be the norm,” he cautioned.
From this, it is strikingly clear that the main two parties are now poles apart, in terms of economic policy. The government insists cuts are required, but the opposition party seeks to negate the need for cuts at all.