George Osborne must do more than talk tough on debt

George Osborne faces a bleak set of circumstances ahead of this Wednesday’s Budget. The economy is extremely fragile and Britain has just endured the ignominy of a sovereign downgrade.

The Conservatives, on top of that, are trailing in the opinion polls, with the Chancellor himself now a “net vote loser”. Oh, and having seen their party come third behind Ukip in the Eastleigh by-election, the Tory not-so-faithful are becoming ever more restive.

garyessex: At last, someone who makes sense and doesn't conflate debt and deficit and acknowledges that the deficit (and the debt) are both increasing. Liam also confirms that there has been precious little in the way of austerity. Some day soon (and it may be forced upon him/her by the IMF and others) a Chancellor is going to have to make some real cuts to ring-fenced budgets, welfare and other entitlements. It should have happened in 2010, but the Coalition did not have the backbone to do so.

mrs_trellis: Over the years I have taken over several businesses that have failed and turned them round. The very first thing that you do with a loss-making business is immediately stop all outgoings that are not necessary for the sustainability of the business.   The second thing is to sort out your input costs from suppliers. The reason why you do these two things first is because they are EASY and IMMEDIATE.  Sorting out production efficiency and finding new customers is far more difficult and an area which takes longer to achieve. So it's with disbelief that I see the basic errors Cameron and Co have made.  I will cite just three simple examples of ridiculous spending that I have seen in the press this last week (and these are so typical of examples that can be found every day of the week in most newspapers): 1. The House of Lords were to consider whether to remove the wool sacks because they cannot fit everyone in.  Apparently Cameron is to create another 32 peers shortly.  WHY ????   Why are we paying eight hundred odd retired elected representatives hundreds of pounds a day to 'Lord' it over us?  Stop creating more peers and slash the existing number by 50%.  Easy. 2. It's been National Apprenticeship Week last week.  All over the country, awards ceremonies and events have been taking place, all funded by the taxpayer.  WHY ???   Shouldn't apprentices be grateful just to have a good job right now? Why do we need to massage their egos by having swanky award dinners and trips in the London Eye (yes, one lot of apprentices and their trainers actually did that - google it)?  Stop it.  We don't need it.  It contributes nothing. 3. William Hague said he was considering arming the 'rebels' (whoever they are) in Syria.   WHY ???  What has that conflict got to do with us?  He has no mandate for encouraging armed conflict, not from the electorate, or the EU or the UN.  What is he doing, FFS?  Stop it !  Quite apart from the fact we can't afford it, it morally questionable in any event. These are so simple and obvious and blatant examples of unnecessary and wasteful public spending that simply to read about them must surely make any reasonably financially literate person shake their head in disbelief.  For sure, Cameron and Osborne have no idea and no control over what their government purports to be about.

drrdf:  "Why do we need to massage their egos by having swanky award dinners and trips in the London Eye…"  Because Mrs Trellis, that is one of the carrots being used to attempt to fool more cannon fodder into modern "Apprenticeships", which are not proper Apprenticeships at all, and will, after the period which is currently usually too short, not likely yield the candidates any jobs nor any appropriate remuneration! Without these carrots of deception they would not get enough takers for the delusion of so called modern "Apprenticeships".

Midtown_Bookie: mrs_trellis,   "The very first thing that you do with a loss-making business is immediately stop all outgoings that are not necessary for the sustainability of the business."   True indeed.   Beware the Post Keynesians and the MMTers. The first thing they will argue is, "A government budget is not a household budget." Second they will argue, "A sovereign can print at will the funds it needs." But they ignore propensity for inflation, and the effect of additional debt on growth and the crowding out of private enterprise by the government making or directing such expenditures in their inefficient, ineffective usual manner.

bill40: midtown/mrstrellis. MMT does indeed state that the household fallacy is exactly what it is, a fallacy. I think pure logic dictates that there will be different rules for a currency issuer and a currency user, don't you think? The monopoly issuer of currency can not only print at will it can credit accounts at will, much more potent. MMT has reams of information on how to tackle inflation when it occurs, the best of any branch in economics. Thre is no such thing as crowding out except in a purely communist economy. It is the private sector that is in need of reform and to stop its' plunder of the public purse. Bottom up reform is required starting with jobs.

postkey: "Thre is no such thing as crowding out except in a purely communist economy."  The extra incomes generated by government expenditure will be mostly  spent in the private sector. This will generate income and jobs in the private sector. There will be 'crowding in' of private expenditure.  

bill40: postkey, I couldn't agree more as usual the neo liberals have it the wrong way round. Apparently this makes you a socialist according to readers of this august organ.

postkey: Yes. But, of course, one of the main assumptions of the neoclassical/neoliberals is that all unemployment is voluntary. In the Great Depression, people chose to take more leisure and starve! According to N.W. there are "1.2 billion labour days of output we are currently leaving on the table due to five million without work that want it."  Implicit in the neoclassical/neoliberal 'analysis' is that this represents 'full employment'! Hence inflation and 'crowding out'.

bill40: postkey, You miss out the ultimate irony, neo liberals lecturing on efficiency!! You couldn't make it up as satire.

martincarter: postkey / bill40 I am not prepared to invest and take risk work all hours and employ people because in too many areas of my (former) business, I have been 'crowded out' by the state, which wants to compete against me in almost every area of business. I don't fear competition as long as it's fair.  Clearly, competing against the state, using money it has taxed from me in the first place, is not fair competition. And both of you seem to forget that creating lots of 'employment' is not an end in itself.  If it was then the country would not be over £1 trillion in debt as a result of ramped up public sector spending from 2002 - 2010.

postkey: " If it was then the country would not be over £1 trillion in debt as a result of ramped up public sector spending from 2002 - 2010." Public sector spending increased {and tax revenues declined} to try offset the downturn in the economy brought about by private sector investment banks issuing trillions of dollars of CDO's. In USA in the Great Depression aggregate demand fell and GDP fell by 28% in the 1930's In USA in the Great Recession aggregate demand fell by a greater amount but GDP fell by by 'only' 6%. Without the increase ingovernment debt then then GDP's would have declined by a greater amount and unemployment would have increased by a greater amount? You may not have seen this? "But that is not where UKPLC is. The charts I produced clearly show that the UK IS living within its means. There is no need for this scaremongering. The problem in the UK is private, not public,debt."

stephenmarchant: Liam, these accounting tricks and financial legerdemain change nothing as UK Plc continues to rack up debt. The figure that matters to all heavily indebted economies is the balance of trade (current account balance). The Japanese Govt has managed to sustain a far larger debt but its economy has largely avoided balance of trade deficits apart from the Tsunami disaster last year. The UK has run an ongoing deficit for over 3 decades as successive Govts have squandered North Sea Oil revenues to maintain a bloated welfare state whilst the banksters in the City have been encouraged to speculate in a virtual economy. The UK needs nothing less than a Marshall Plan to steer the economy away from the rocks. However, the Coalition would see the painful medicine as political suicide rather than do what is right for the nation. The Chancellor and his coalition buddies must ask themselves whether the country will be worth fighting over if we continue on this course. To those of us who really understand the dire strait of the real economy there are no magic levers that he can pull. He must be honest and tell the truth which will mean an end to entitlement for welfare recipients, crony capitalists and banksters.

benf: As you say: political suicide Brits can either bite the bullet or have nature sort it out for them, as it has been doing for millions of years. I'd bet on outside forces changing circumstances for stupid Brits rather than an internal epiphany. ps: vote for me - I'll give you twice as much jam as the last guy +and+ keep house prices high!

carbonylgroup: vote for me, I'll not only give you more jam than benf I'll +++give+++ you lots of free stuff paid for by somebody else… what, why am I arranging a Swiss bank account for my PM salary?

kibes: Agreed

horesecallederic:   "To those of us who really understand the dire strait of the real economy there are no magic levers that he can pull." And herein lies the problem, there are so few people who know, care to know or even care about the financial mess we are in. The politician have done a great job of infantilising  the population and allowing people to believe they can live way beyond their means. It has now come to the point where the majority of those given a vote are not fully equipped to exercise their right to vote as they are intellectually incapable of proper thought on such important matters. 

Gillian23: The state and it share of our collective spend has to shrink by about 50%. Either that contraction (and hence rebalancing) can be managed or it will happen chaotically. I rather fancy the latter after a lib-lab win in 2015.

moraymint: Yes, I agree that if we're to move to a sustainable level of state overheads then the government's share of GDP must be managed down from 50% to circa 30% of the nation's 'turnover'. Since this is politically unacceptable (aka political suicide), then our society's transition to a lower public sector spending future will indeed be chaotic. My money is on a precipitate decline in social cohesion and stability from 2016, a year or so after the screaming reality of another Labour government hits home.

carbonylgroup: I rather fancy an IMF sponsored bailout, with being made to join the Eurozone and a confiscation of assets being the price post NuBalls and Ed's ghastly double act.

florderey: We are still living with the consequences of Gordon Browns gambit, which was to pay the Public Sector over 40pct above inflation during his time as Chancellor, in essence bribing them. The bubble has burst Finantial Services do not bring in the same taxes yet these people are still being payed the same. Our Welfare System cannot be maintained with current levels of taxation, we need to have a debate regarding this issue, my personal view is to cut most benefits and tax credits and use the money to increase the tax threshold.

Midtown_Bookie: Cut, cut and more cutting. Economic activity is not increasing anytime soon.  This is not simply a business cycle downturn.  As a result, expenditures must be cut to align spending with receipts. And no tricks of increasing government revenue. Across the board spending cuts in the neighborhood of 10pc are needed immediately. Private enterprise is the "real" life blood of economic activity; so don't burden it further with tax hikes. Cut taxes, if anything. And QE is tax too.  Stop this insanity at once. It is not trickling down into the general economy. It is just a mechanism to transfer wealth from savers and pensioners whilst allowing the government to delay serious reform. I understand the above will never be instituted by any of UK's mainstream political parties; a real shame.