A downturn in imaginative thinking
Alistair Darling’s plan is to kickstart a ‘low-carbon recovery’. This is code for: ‘We have run out of ideas.’
‘We have absolutely no idea what is going to happen in the next two or three years. We’re in our first proper global recession since the Second World War. To make matters worse, we’re not quite skint but we’re going to be running up debt like there’s no tomorrow. As long as the markets don’t panic and keep supplying us with loans, it’ll be a major headache, but no more. So we’re just going to keep spending for now and hope that something turns up in the next 12 months.’
Now that would have been a mildly entertaining and honest Budget speech. Sadly, it is not what Alistair Darling said at the Despatch Box yesterday. Instead, while Britain’s chancellor of the exchequer gave us a more sober account of the country’s finances than he has done before, he did little to indicate that he has any plan for dealing with the problem. He did say that the UK economy is likely to shrink by 3.5 per cent in 2009, compared with his forecast of a one-per-cent decline when he gave his pre-Budget report in November last year.
But Darling is still optimistic that after an anaemic upturn in 2010, growth will kick in properly in 2011, reversing the decline we suffer this year. City commentators and forecasters are more pessimistic, perhaps realistic, about the chancellor’s forecasts: they believe the UK economy will crawl along for a good deal longer than Darling suggests. No doubt their gloom is intensified by the thought that the UK’s finances are in the hands of someone still trying to convince himself – and us – that things will magically turn out to be okay.
What is widely agreed upon is that the world economy is in a synchronised recession, with every major developed economy shrinking. That hasn’t happened for more than 60 years. A report from the International Monetary Fund (IMF), published yesterday, suggested the world economy will shrink by 1.3 per cent this year. However, the IMF believes advanced economies will decline by 3.8 per cent.
In this respect, the UK and the US are relatively well off. However, those countries still foolish enough to depend on manufacturing exports – Germany and Japan – have taken an absolute beating in recent months, as orders for their products have slumped. The US economy is forecast to shrink by 2.8 per cent this year and the UK by 4.1 per cent (the IMF clearly disagrees with Darling), but the declines will be more severe in Germany (5.6 per cent) and Japan (6.2 per cent). The only silver lining for the world economy is the continuing, if constrained, growth in fast-developing economies like China and India, and the thought that if things are bad here, they’re even worse somewhere else. Never has schadenfreude felt so good.
One area in which Britain is worse off than other countries is government finance. Even with Darling’s strange and unrealistic forecasts, the UK will have debts around 79 per cent of gross domestic product (GDP) by 2013 – roughly double the levels of the past few years. We will still not be as indebted as Italy or Japan, but we will be getting close. The cost of just servicing that debt will be as much as the UK defence budget and more than is spent on transport. Ouch. Moreover, the cash will have to be borrowed from the international money markets, so Darling can only hope that they retain confidence in Britain’s ability to repay this ever-increasing debt, or Britain will have to pay high rates of interest to attract finance.
For the moment, the attempts to control this debt seem pretty meek. A hike in income tax to 50 per cent on the wealthiest earners – those with annual incomes of £150,000 or more – will be regarded as a dig at those greedy bankers who have been blamed for the crisis. Cutting the number of civil servants is also an attempt to play to the gallery. In making these political gestures, Darling is actually avoiding the fact that taxes more broadly may have to rise sharply, or there may have to be drastic cuts in public expenditure, in order to bring the debt mountain under control.
Between the gloomy forecasts and the run-of-the-mill Budget highlights (1p on beer, 2p on petrol, 7p on cigarettes, etc), what was really needed was some indication that there is a broader plan. Yet the best that Darling could pull out of his hat was a plan for a ‘low-carbon recovery’. Apparently, there are already schemes in place that mean the government is ‘enabling’ £50billion of green investment over the period 2008-2011. This looked like a desperate piece of cobbling together, claiming credit for private financing while redefining some old-fashioned spending, like public transport, as ‘green’. In fact, nearly half of the promised £50billion is for public transport and low-carbon vehicles.
Such schemes, so the Budget Report assures us, will ‘place the UK at the forefront of a worldwide low-carbon economic recovery, providing an opportunity to create new jobs and business in sectors of the future through low-carbon growth. By 2015, the low-carbon and environmental sector in the UK is expected to grow by £45billion, taking its total worth to £150 billion. By then, the sector could employ 1.3million, up by 400,000 from today.’ This is a sector bloated on subsidy, which means we should ask ourselves: with government finances likely to be stretched to the limit in the next few years, do we really want to spend them on doing things we already do – deal with waste, generate electricity, drive around, etc – only in a more expensive way? Some recovery.
If we are going to throw money at something, how about the shortage of affordable housing or our gridlocked roads? Better still, how about seriously investing in science and technology research that might enable Britain to become a world leader in something truly new, innovative and useful? Instead, the government has set binding targets to reduce emissions of carbon dioxide and other greenhouse gases: it wants to slow down and do old things in a new way, rather than think big about how to address this serious recession.
One of the chief problems in the current recession is the level of uncertainty expressed by world leaders, including leaders in Britain. There is little sense of any goal, other than getting back to the stable and anaemic level of growth that existed just before the collapse of Lehman Brothers, which fired the starter’s pistol for a broader financial collapse. The political class has no idea what to do, other than to firefight problems as they arise. A long-term vision for the world economy, or at least a recognition that things have fundamentally changed, is absent. The economy of the Nineties and Noughties, based on state spending and private debt, has been called into question. So, what’s next?
Rob Lyons is deputy editor of spiked.
Mick Hume saw last year’s budget as a cheap excuse for politics, and described Gordon Brown as a very ‘little Stalin’. Rob Killick looked at what’s in store for the British economy and set out a three-point agenda of what the G20 – and the rest of us – should be debating. Or read more at spiked issue Economy.