Britain walks the tightrope of economic misery
UK economic forecasts are getting grimmer and more urgent. In tomorrow’s autumn statement, the chancellor George Osborne will be forced to confirm a long period of rigid austerity.
It will be the toughest test of his mettle so far, say the commentators. When George Osborne stands up tomorrow in the House of Commons he will have to deliver a message that is as bleak as it is blunt: Britain is teetering on a tightrope over the jagged rocks of ruin and it will take at least six years to get safely to the other side. If you think this Christmas is tough, you ain’t seen nothin’ yet.
The economic climate around his ‘autumn statement’ – the mini-budget that the government makes each winter – could hardly be worse: Britain on the verge of its second recession in three years; an acceleration of the Eurozone crisis; predictions of 100,000 more public sector job losses and talk of a British ‘lost decade’ – referring to Japan’s ten-year stagnation after its economic bubble burst in 1990.
If that’s the big picture, why such a bleak message? The polls reported yesterday show David Cameron suffering badly from negative views about the economy. If he wants to get votes, shouldn’t Osborne find a way to cheer things up? The answer: try as he might, he has no choice.
The Office for Budget Responsibility (OBR) – launched last year for an independent check on the government’s figures – will report that Britain’s balance sheet has worsened since the March budget. Osborne will have to admit this without scaring the ratings agencies – analysts who put a price on government borrowing. If they downgrade Britain, making its debt more expensive, the country could go bust like Greece.
The government’s income – and the all important gap between how much money it spends and how much it gets – is suffering from people paying less tax because they are making less money. However hard Osborne cuts his spending, his income falls faster. The more he cuts, the more his income falls. But if he tries to cheer voters up with tax breaks and subsidies, the ratings agencies could go hostile.
Tomorrow’s statement links directly to a vital debate about political power in the UK. British politicians, in common with their peers around the world, have gradually surrendered economic leadership (i) to unelected bodies such as the OBR and the independent Bank of England and (ii) to powerful market makers such as the ratings agencies and the bond traders. Those in favour of this development say it keeps politicians honest.
But does it turn them into puppets? George Osborne can do very little tomorrow except tell the truth and face the music. Maybe this is good. On the other hand, voters need to see their leaders having more control. It is a cornerstone of democracy that people have control over their own lives, through their elected representatives. When the masses feel they have lost control, revolutions happen.
- Should the government be blamed for our economic troubles?
- Do you think anything good might come out of six years of austerity in Britain?
- Split into groups. Invent a business idea that you might launch next year, knowing that a lot of people will be feeling very short of money. Present your ideas to the class for a vote.
- The most popular politician of all time is often supposed to be the President of Brazil from 2003 to 2010, Luiz Inacio Lula da Silva, known as ‘Lula’. Research his career and list five things he did that might have made him so well loved.
Some People Say...
“Letting a politician play economics is like letting a magician play cards – you’ll never know what’s really going on.”
What do you think?
Q & A
- I’ve read some positive news about Osborne’s statement. Is it all lies?
- No. But what’s happening is that he knows that the next 48 hours will be dominated by grim numbers. So his team are leaking little snippets of good news to the media in advance so that they get some coverage before the grey tide drowns them out tomorrow.
- What is this good news, then?
- There’ll be more lending to small firms; a boost to spending on roads and buildings (including new school buildings); the scrapping of swathes of health and safety legislation to help employers; a freeze on train fares and petrol duty; and £1bn to help young people find work. But all this is small stuff compared to the real news that Osborne will have to admit: that we are going to be £18bn worse off next year than he thought in March.
- You ain’t seen nothin' yet
- A phrase believed to have been coined by the great American entertainer Al Jolson in one of the earliest ever films with recorded speech The Jazz Singer (1927). It has come to refer to any situation where the real drama is yet to come.
- Often taken to be a general term for economic decline, ‘recession’ is actually a very precise word meaning a situation where an economy suffers two consecutive quarters in which the total economic output, or GDP, actually shrinks.
- Public sector
- The part of the economy that relies directly upon the government. In the UK there are just over six million people employed currently in the public sector, working for central or local government, the police, schools, the National Health Service or the armed forces.
- Tax breaks
- Any government cuts or allowances in the tax bill that members of the public, or businesses, have to pay.
- Independent Bank of England
- In 1998 the government acted to make UK’s central bank, the Bank of England, independent of the government in setting monetary policy.
- Face the music
- Means ‘to face up to the unpleasant consequences of your actions’, but nobody agrees on where the phrase comes from. Some believe that it comes from the time when soldiers who were expelled from their regiments for bad behaviour were ‘drummed out’ and had to march between the drummers in a walk of shame.