“When he was busy getting someone to cook the books, did the prime minister forget he had established an independent body, the Office for Budget Responsibility, to stop politicians deceiving the public about the nation’s finances? Or was he simply too arrogant to care?”
So asked the Financial Times this week in a report slamming the government for promising tax cuts while it continued to hack back public spending.
Whilst stock markets toy with record highs on a sugar rush of unconventional monetary policy (the Bank Of England voted yesterday to continue a £375 “Asset Purchase Facility” (APF) that essentially subsidises speculative investment by global funds)* the jobs that have been created in Britain are unstable and low-wage.
Privatized profits and nationalized losses are the name of this game. The Bank of International Settlements admitted it this week in a quite startling manner:
The financial sector benefi ts from financial risk-taking by earning greater expected returns. However, risk-taking also increases the incidence of large losses that lead to credit crunches and impose negative externalities on the real economy… A regulator has to trade efficiency in the fi nancial sector, which is aided by deregulation, against efficiency in the real economy, which is aided by tighter regulation and a more stable supply of credit. We also show that financial innovation, asymmetric compensation schemes, concentration in the banking system, and bailout expectations enable or encourage greater risk-taking and allocate greater surplus to Wall Street at the expense of Main Street.
There you have it, from the Basel-based BIS, the “Central Banks’ Central Bank”. The financial sector is getting fat, literally at your expense.
In the meantime, places like refuges for abused women in Herne Bay are forced to close after their already puny funding is cut** and hospitals in Margate and further afield are put into special measures. State schools in Ramsgate lease their sites from private capital funds who force them to pay £25 to change a lightbulb. Are all these cuts to the public sector leading to a reduction in government indebtedness? No.
And as the FT also noted: “Growth of employment, which is not matched by rises in output or tax receipts, suggests the potential level of economic activity is yet weaker than we had hoped.”
Public sector net debt in 2013-14 is higher by £129 billion in cash terms than the previous year, the most recent report from the Office for Budget Responsibility notes (the OBR is an independent fiscal watchdog created in 2010 to provide analysis of the UK’s public finances).
This is admittedly partly because of a change in accounting rules: The debt of Network Rail and the APF are now being included in the measure and that bank shares bought by the government during the financial crisis are now treated as an illiquid asset rather than a liquid one, so that they no longer reduce the headline measure of net debt.
But even discounting that change, public sector net borrowing was £11.6 billion in August, more than last year. PSNB has risen by 6.2% in the year-to-date. As the think tank of renowned economist Nouriel Roubini noted this week in a forecast for “developed markets” in 2015: “In most cases, narrower fiscal deficits will be a result of economic recovery rather than growth-killing, premature austerity.”
It’s time to stop the lunatic pretension that a combination of flabby largesse for the markets and the carving knife and corset for the real economy and the public sector do anyone any favours. See my link above about the Green New Deal for some better approaches.
*In the BOE’s words: The Bank of England electronically creates new money and uses it to purchase gilts from private investors such as pension funds and insurance companies. These investors typically do not want to hold on to this money, because it yields a low return. So they tend to use it to purchase other assets, such as corporate bonds and shares.
** I find it alarming, although understandable, that so many great small charities as well as larger public bodies are reluctant to speak out about the pressure they are under, for fear no doubt of further alienating those holding the purse strings of a purse that may still have a few coppers left in it.