Wednesday, June 30, 2010

Osborne's cuts will increase spending by £4 billion a year

The Guardian says today that George Osbore's spending cuts will create 1.3 million job losses over the next 5 years, according to the Treasury's own estimates. How much will this cost? Counting the Job Seekers' Allowance alone, this means an additional payout of  £732 to £865 million each year, so that in 2015 we will be paying an extra £4.3 billion a year to keep these unfortunates in some semblance of life.

And that's just the JSA. To this must be added the costs of stress on the families, ill health (extra burden on the NHS), administration costs (delays in paying benefits due to job losses withing the social services), increases in crime (as people steal and rob to help make ends meet), with increased police, court and prison costs, and public disorder as demonstrations turn violent, as in Greece.  Not to mention defaults on mortgage payments, which will lead to house repossessions, and another dose of bank assets that turn bad.

Let us assume that these on-costs double the core cost of paying benefits. £8.6 billion a year. Round it up to £10 billion additional costs on State spending.

What is our deficit again? Annual borrowing is about £163 billion. So the Cleggeron's policies, aimed at reducing borrowing, have increased borrowing by 6%.

Brilliant. Thanks a lot, George. And Dave. And you, Nick. This is what we get from dumb, non-systemic economic thinking. The Cleggeron approach is to look at the balance sheet, and try to manipulate the numbers using simple-minded GCSE arithmetic, rather than looking at the economy as a living system.

Yes, the budget deficit and the National Debt has to be brought down. But it has taken centuries to get to this stupid situation, and it is not going to be rectified in 5 years of frantic budget slashing. Our economy needs to be restructured organically, wisely, over decades. The primary reform needed is to include the cost of externalities - things like energy resources and biodiversity, things that are left our of the default calculations of our present dys-economy.

The Office of Budgetary Responsibility assumes that all will be well because the economy will grow, causing the tax take to increase. Even as they are humming this comforting mantra, the news coming in from the USA is that consumer confidence fell sharply in June, indicating that people fear a second wave of recession.

Economics is a complex business, so it is best understood through an analogy. The UK's economy is like a patient undergoing heart surgery by a team led by a plumber with a limited grasp of English who insists on wearing boxing gloves. Without an anaesthetic.

Ah well. We shall see how it all turns out in due course.


weggis said...

That's the trouble with just reading the headline, Doc.

Further on in that same piece:

"The Treasury is assuming that growth in the private sector will create 2.5m jobs in the next five years to compensate for the spending squeeze."

My primary school arithmatic tells me that's a projected Increase in employment of 1.2 million jobs.

OK it is an "assumption" but even if it's only half right we still have no net job losses.

I dunno ye of no faith in the private sector?

DocRichard said...

Hi Weg
Cuts are due to become a fact. Growth is an assumption, based on sunny optimism.
I read today that the banks are due for another wobble.
Time will tell.

DocRichard said...

Weggis, more on this on today's blog.
"In short, the "non-political" OBR estimates are nothing but a heap of dingoes' kidneys, a figure plucked from the air to cheer up the politicians".

weggis said...

You under estimate the power of the retired mates favours network.

Once you have perfected your compostable toilet, everybody will want one, and you will be the new Bill Gates!

Anonymous said...

The compost toilet is already perfect. R