Friday, July 15, 2016
Aditya Chakrabortty - George Osborne’s austerity choked off the recovery: Brexit is his legacy
The former chancellor’s reputation lies in tatters after six years of punishing the poor and rewarding the rich prompted the referendum revolt
By March 2015, George Osborne was pulling together his final budget before the general election. The austerity chancellor had already hacked billions from health, education and social security; now he planned to slash billions more. But he had prepared one massive give-away: the complete abolition of taxes on savings, worth well over £1bn in lost revenue.
It was costly, at a time when the government was cutting to the bone. It was unjust, throwing millions at the richest, who needed it least. And it was a kick in the teeth to all those whose lives had been turned upside down in the past five years. The idea was blocked by Nick Clegg and his Liberal Democrat coalition partners. Osborne’s response is recorded by David Laws, Clegg’s ally in government negotiations. It ranks as among the most revealing things ever said about the Conservatives’ austerity strategy.
The multi-million-pound spending spree wasn’t justifiable, admitted Osborne, according to Laws’ recent memoir, Coalition. “It will only really be of help tostupid, affluent and lazy people, who can’t be bothered to put their savings away into tax-efficient vehicles!” said Osborne. “But it will still be very popular – we have polled it.”
Disabled people could kill themselves to put an end to the government’s reign of terror, and the chancellor would shrug. Working-class kids could live on foodbank lunches and ministers would claim they had no alternative. But shovelling cash at the people seen as undeserving by their very own benefactor? That, Mr Austerity would happily do. Anything to buy votes.
Remember that exchange as the moist-eyed tributes to Osborne come in over the next few days from his friends in the Conservative party and press. “A great chancellor,” says his former aide. The man himself has kept it uncharacteristically modest: “I hope I’ve left the economy in a better state than I found it.”
If only, George. While at Oxford, Osborne was a member of the Bullingdon Club and during his six years at Number 11, he trashed the economy as thoroughly as the Bullingdon boys trashed their restaurants. Under him, Britain has endured its weakest recovery in well over 100 years. The average worker is still worse off than they were before the banks collapsed in 2008. The chancellor, who promised a march of the makers, has presided over the collapse of our steel industry. The enemy of government borrowing has bequeathed to the nation a public debt burden almost three times what it was when Margaret Thatcher was ejected from office.
The arch defender of our credit rating has seen Britain lose its AAA status. And now he leaves the country staring into what David Blanchflower – the former Bank of England rate-setter who predicted the last crash – now warns could be “a crisis bigger than Lehman Brothers: a political and economic disaster”.
Osborne’s fiscal rules have been either broken or discarded, and where their replacement should be is instead a complete vacuum. The man praised for his “strategic grip” by his former permanent secretary admitted last month that he hadn’t bothered coming up with a post-Brexit strategy. Britain is adrift in what could be the choppiest waters in decades without a fiscal policy, a paddle – or even a map.
None of this is accidental. All of it could have been foreseen – indeed, wasforeseen by some of us. But it is the direct result of a sniggering callousness that punished the poor while rewarding the rich, that promised greater power for the provinces while shunting ever more money to central London, that bilked the young of their futures while bribing their grandparents all the way to the ballot box.
Perhaps the biggest charge historians will make against the chancellor is that his unfair, unreasonable economics helped produce the vote to leave Europe.
At the heart of Osbornomics were two contradictory impulses. First, and most important, was his belief that the state was “crowding out private endeavour”. His remedy was simple: slash the public sector and cut taxes and – hey presto! – you have a flourishing economy. This is what produced the wild optimism of those early forecasts of a historic boom in business investment (which never came) and the deficit paid off within five years (a deadline that was soon extended to 10 years).
To bolster his case, Osborne used evidence the way a drunk uses lampposts – not for illumination, merely to support him in his excesses. He often quoted a paper by Carmen Rheinhart and Ken Rogoff predicting disaster if public debt got too high. The finding was utterly debunked by a 20-something student, but Osborne kept quoting it anyway. The result was that the UK took longer to come out of its slump and was robbed of income – until panicky backbenchers forced Downing Street to park the strategy and chase growth from any source, especially the housing market.
The other part of Osbornomics stemmed from a justified desire to “rebalance” the economy, away from the City and London towards other industries and parts of the country. That would have required serious analysis and investment. What it got was glibness and austerity economics.
The “march of the makers” ended with the collapse of the Redcar and Port Talbot steelworks. As for the much-vaunted “northern powerhouse”, it was always a branding exercise rather than anything serious. After Clegg lobbied him to include Sheffield, he came out of the meeting chuckling to Laws: “George is hilarious. He immediately suggested including Sheffield and just dropping Leeds.” Sheffield, Leeds: to a Notting Hill boy they’re all oop north, aren’t they?
It was all just a hi-vis gag: according to the government’s own figures from last July, of all the spending on infrastructure on which work is actually under way, almost 50p of every pound is going to London. The north-east is getting less than a penny. Alongside this are the findings of Steve Fothergill and Christina Beatty, showing how the Tories’ welfare cuts left the prosperous south-east and booming inner London almost untouched. According to the authors, the areas hit hardest were “older industrial areas, less prosperous seaside towns, some London boroughs”. In other words, Brexit-land.
Thatcher and Blair might have left parts of the country battered and feeble, but it was Osborne who cut off their life support, by taking away the public sector jobs and benefits. It was Osborne who created the post-crash economy of low pay and zero-hours contracts, at the apex of which stand the likes of Mike Ashley and Philip Green. It was Osborne who took the tax revenue from eastern European workers but refused to reinvest it in schools and local government, thus stoking community tensions. It was Osborne who indulged in the divide-and-rule rhetoric of skivers v strivers. He has to take part of the blame for Brexit, even while he no longer has to shoulder the responsibility for it.
It’s his successor, Philip Hammond, who will face the news of big businesses pulling investment, workers getting less work and shops receiving less money. Of Mark Carney admitting the Bank of England has precious little room for manoeuvre – as a direct consequence of Osborne’s failure. To save the economy, Hammond will have to repudiate Osbornomics. I fear that that remains unthinkable for a Tory.
Still, George, what larks, eh? Now on to the non-executive directorships and six-figure speeches.