Thursday, August 12, 2010

At first I thought I must be wrong. Why would any government pursue policies it must realise would create a recession? Every time there is a major policy development, like the emergency budget, forecasts of growth are reduced further. Yet, day by day, I have searched for an explanation and failed to find one that makes sense. Over the past few months the new coalition government in the UK has been pursuing policies that seem inexplicable.


There are clearly two messages being promoted. First, we have an unprecedented deficit that has to be reduced. Fair enough, but the question is over how long? Much of the deficit is temporary, as a consequence of the bank bailouts, a policy that the two governing parties supported when in opposition) yet ignores the fact that our debt is much lower than most other industrialised countries and the average period before it reaches maturity is about twice as long (we have a paper out soon in the Journal of Public Health explaining all this). The second is that all of this is the fault of teh last government. Again, fair enough – New Labour blamed everything on the conservatives for years after they came to power in 1997. But it is difficult to explain why forecast growth is falling as the government sets out its policies and not rising.

In fact, it seems totally uninterested in growth even though it is one of the most important ways that it could reduce the deficit. It is explicitly pursuing the same policies seen in Ireland and Greece that have arrested economic growth there.

Another way to promote growth would be to provide targeted support to British industry through export guarantees and the work of the regional development agencies. All that is going. Worse, it seems to celebrate the fact that countries like Germany are retrenching when it should be horrified. Where does it think we will export to?

Growth will certainly not come from domestic demand, as it is planning to put about 1.3 million people out of work (about half each in the public and private sector), increasing the cost of welfare payments (and it must know that, for many of those over 50, the chances they will ever work again are remote). The chances of significant job creation are limited given the shortage of credit, and it seems unwilling to act to make the banks lend more.

It is also abolishing as many QUANGOs as possible, bringing key functions within government departments. They will no longer be able to profit from their trading activities – the Health protection Agency will lose the third of its budget that comes from this source. Will the government pick up the bill or will it just allow health protection to weaken?

Then there are the short term costs, of redundancy and redisorganisation. Kieran Walshe, in a BMJ editorial, estimated that the (incomprehensible) redisorganisation of the NHS would cost at least £3 billion, as well as paralysing it for 3 years.

The only explanation I can find is that the government’s true aim is the ideological one of cutting the size of the state to that in Victorian times. The view that George Osbourne is now the “minister for cuts”, as suggested in today’s Guardian, is supported by his decision to maintain the independence of the Bank of England, so denying him any say over monetary policy, and to give many of his remaining powers to the soon to be leaderless Office for Budget Responsibility. Most of the traditional economic levers have been passed to the governor of the bank of England whose main quality is consistency, in being wrong. The rest have gone to a totally untried body, unsure even of who it reports to. All that the Chancellor has left is to chair a competition among ministers to see who can wear the hairiest of hair shirts.

We see the evidence every day. The government seems to have gone to war with its civil servants, publicly humiliating them at every opportunity. Yet, one thing finally convinced me that there was a single ideological goal to cut the size of government. Surely they must know that the creation of a generation of school leavers with no prospects of employment, with reduced university places, and without even the possibility of joining the armed forces is very likely to lead to civil disorder? Remember the early 1980s? In such circumstances, surely it is madness to reduce the police force?

Of course, there may be a better explanation, in which case could someone let me know.

1 comment:

Anne Marie said...

I don't have a better explanation. Thank you for sharing your insights.