This week, the UK Chancellor releases the latest fiscal statement (aka ‘the budget’) and will also have a eye to the general election which must be held before January 28, 2025. One would expect the government would stall the announcement and delay the election for as long as is possible, given the current situation and the cumulative impacts of 12 years of Tory rule, which are plain to see at all levels of British society. All the talk is of tax cuts, that typical ‘sugar hit’ approach to winning votes that soon works it way out of the system. The debate as to what the British government should now be doing is clouded, as these debates are always clouded, by the input of organisations such as the Office of Budget Responsibility, which claims its charter is to “to examine and report on the sustainability of the public finances”, yet consistently provides input which is irrelevant to the substance of the issue and just feeds the flawed political scrum. In the end, the policy choices are not based on the actual opportunities and threats that are available to and confront the currency-issuing government but rather a fictional mindset that all the players are trapped within.
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On the ‘sugar hit’ tax cut strategy helping win elections, the most immediate example is last weekend in Australia where the current Labor government won a by election against all odds, which was caused by the death of a sitting member, by offering a new round of tax cuts to low- and middle-income voters.<\/p>\n
But in general such a sugar rush dissipates fairly quickly and if the British government thinks tax cuts, which are being pushed by the Prime Minister, will solve their acute political disadvantage at present then I think they will be disappointed.<\/p>\n
12 years of damaging austerity cannot be easily undone even though Labour offers very little that is different, which is a problem facing voters across the world – the convergence of the progressive and conservative political parties somewhere on the right of centre.<\/p>\n
That convergence is driven by the fact that both sides of politics have become captured by the dominant mainstream macroeconomic narrative that so restricts the fiscal opportunities that are provided to governments by economic analysis and commentary that there is no room left for much policy variation.<\/p>\n
So while Labour-type parties around the world try to pretend they are fairer or more enlightened about the contemporary issues such as poverty, inequality, precarious work, climate change etc, the options they perceive after being briefed by these economists are so narrow that the ‘talk’ is not much more than pretence.<\/p>\n
Witness the recent surrender by the British Labour leadership on climate – where a ‘grand-plan’ (which wasn’t so grand anyway) has been abandoned because they have been told Britain ‘cannot afford it’.<\/p>\n
We will see what the increasing climate chaos does for affordability – true affordability in the coming years as a result of the inaction that this type of thinking spawns.<\/p>\n
The current fiscal debate in Britain is now being structured by the input form the Office of Budget Responsibility (OBR) which has convinced the political class, the media, and hence the ‘people’ that ‘fiscal headroom’ – in the way they define it – is a concept that is portent and drives the political choices taken with respect to spending and taxation decisions.<\/p>\n
The problem is that their concept of ‘fiscal headroom’ is largely meaningless and certainly not an appropriate framework within in which to make choices that will influence the direction of British society in the coming years – and, not to put too finer point on it – determine whether Britain can survive the climate onslaught that is upon it (and the rest of us).<\/p>\n
Just last week (February 29, 2024), the UK Guardian article – Hunt scrambles to raise revenue as OBR slashes scope for tax cuts in budget<\/a> – reflected the diversions that the OBR provides to sensible debate, when it reported that:<\/p>\n \nRecent forecasts from the Office for Budget Responsibility (OBR) are said to have given the chancellor less fiscal headroom than hoped, pushing him to consider unexpected tax rises such as abolishing the non-dom tax status.\n<\/p><\/blockquote>\n The OBR defines ‘fiscal headroom’ in terms of pre-defined “fiscal targets” or fiscal rules.<\/p>\n The procedure is for the government to legislate ‘fiscal targets’ and then the OBR evaluates the policy options in terms of “likelihood of” the targets “being met on current policy under our central forecast” (Source<\/a>).<\/p>\n