An Economic Basket Case: The UK Under the Cameron Regime

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Osborne delivers his verbose dictum, House of Commons, Parliament, UK, 3 December 2014. Courtesy: PA

By Ann-Marie de Veer
Saturday 6 December 2014

On Wednesday 3 December 2014 George Osborne, the UK's Chancellor of the Exchequer (COE), Second Lord of the Treasury (aka. Minister of Finance or Secretary of the Treasury) and financial functionary of the David Cameron regime was extolling the virtues of the UK economy in his Annual Autumn Statement:

1. The UK has the fastest growth among the G7 economies.
2. There are more people in work than ever before.
3. The (structural) deficit is forecast to have fallen by half by the end of 2014-15.

The address, a verbose dictum replete with rhetorical aphorisms, failed dismally to convince the majority of the parliamentary crowd in the House of Commons or the wider audience at large given that the UK economy is neither under control, nor on a path to balance its budget in the near, or medium term future. In fact, the situation could hardly be much worse, especially since the GFC of 2008-9 and the subsequent rise to power of the Cameron regime in May 2010: the UK economy has, akin to most other Western economies, been stuck in the doldrums for years and is likely to remain so for some time yet.

The Public Sector Borrowing Requirement (PSBR) is set to soar to almost £280bn by 2020, an increase of £75bn over previous estimates.

While Osborne may claim that he will have halved the structural deficit in the economy by 2014-15, and in toto by 2018, it is far from certain given the PSBR is on an upward trajectory and unlikely to peak until 2020 or beyond. Clearly his options in addressing this issue are limited and all have electoral consequences, i.e. to monetise the debt (print money) and thus raise the inflation rate up to the Bank of England's threshold target of 2.5% or, to encourage and/or create growth (usually by an increase in the population/net migration) to generate demand, are both unsustainable in the medium to long term and politically ruinous.

Nonetheless, as evidence from The World Bank proves, he has used both of these tools in the past and is continuing to use net migration to drive growth:

Courtesy: The World Bank

Of course, Osborne has other options, some of which are in play today, both in the private and the public sector: he has given tax breaks and preferential loan options to businesses while salami slicing the public sector, i.e. reducing welfare benefits and other social programmes. The effect of the latter, in particular, has been quite damaging politically: the Cameron regime have lost two seats in recent by-elections and are likely to lose many more in the general election next year. The likelihood of them remaining in office beyond May 2015 is diminishing fast.

Clearly the current financial situation in the UK, like many other Western nation states is, in part, a product of the voracious greed by national and multi-national corporatists who have used outsourcing and off-shoring to maximise their profits while employing aggressive tax avoidance and evasion schemes to minimise their liabilities. As in other countries, the effects in the UK have been an increase in unemployment, particularly among the middle income earning group, plus a significant reduction in the tax revenue for the COE, estimated to be between £12 -27bn. Thus, both the personal and corporate tax bases on which previous and the current COE have relied upon have been seriously eroded and are unlikely to recover any time soon.

Naturally, Osborne cannot be held accountable for the failed policies of previous Chancellors but he is, as is Cameron who is First Lord of the Treasury, accountable for the performance of the economy during their four-and-a-half-years since assuming office.

Osborne's claim that there are now more people in employment since the Cameron regime came into office fails to mention that the vast majority of positions that have been created are either unskilled or semi-skilled labourers on short-term or zero-hour contracts. The fact that this new cohort in the workforce are unable to significantly contribute to the economy because of being either under-employed, on very low rates of pay or having irregular or zero-hour contracts does not feature in the lengthy, 108 page, document. Osborne's vacuous treatise easily surpasses even his verbal diatribe in parliament.

As for the UK having the fastest growth among the G7 economies: this is selective reporting at its worst and factually incorrect, it is 4th with an average growth rate of just 1.14% for the last ten years (2004-13).

The truth is:

1. Net migration is the principal instrument of growth in the UK economy.
2. Under-employment has created an economically inactive cohort within the workforce.
3. The structural deficit will not reach equilibrium until 2020 or beyond.

That the First Lord of the Treasury, Cameron, is ultimately responsible for the parlous state of the UK economy, while Osborne is merely its chief architect and functionary, is not in question. The question is, how much longer will the country be saddled with this fiscally inept pair of apparatchiks who are incapable of balancing even the family budget, let alone having the fiscal acumen to correct the structural deficit of the country. If the UK was not an economic basket case before they took office, it most certainly is now.

Both Cameron and Osborne are completely out of their depth: the deep end is for those who can swim.

Losing the plot assumes having had one in the first place.
Ann-Marie de Veer