The Age of Irresponsibility

George Osborne's budget speech was, as usual, a masterclass in combining the rhetoric of change with reality of continuity. Britain has, according to Osborne, left 'the age of irresponsibility' behind. There is very little basis for this claim. Instead, the Budget, Osborne's first without Lib Dem shackles, perpetuates his reckless stewardship of the British economy.

George Osborne's budget speech was, as usual, a masterclass in combining the rhetoric of change with reality of continuity. Britain has, according to Osborne, left 'the age of irresponsibility' behind. There is very little basis for this claim. Instead, the Budget, Osborne's first without Lib Dem shackles, perpetuates his reckless stewardship of the British economy.

The claim to have moved on from age of irresponsibility rests primarily upon the proposal that governments should be compelled to run budget surpluses under 'normal' economic circumstances. This represents a staggeringly irresponsible agenda, insofar as it constrains government's ability to borrow to fund very long term investments that will benefit future generations. The economics are obvious: the unborn can pay at today's prices for the public services and infrastructure investments they will need in decades to come, rather than at inflated future prices.

Government borrowing is also absolutely fundamental to how the pensions system functions, because public debt is a very safe place to store our savings. Osborne continues to preserve the myth that public debt and private debt are equivalents, yet in economic reality they are antonyms. Public debt enables private saving, and so less public debt necessitate more private debt.

I am quite sure that Osborne knows this - but his gaze is fixed solely on the very short term, from one set of quarterly GDP results to the next. This is evident again in relation to the government's efforts to prop up the housing market, through measures such as the extension of Help to Buy and inheritance tax cuts. There were some minor reforms to the tax relief available to buy-to-let landlords (at the behest of the Bank of England), but Britain clearly remains a buy-to-let paradise.

In short, our economy remains under the threat of a burst of the property bubble - and the threat is a severe one. All the while, much-needed capital is being sucked out of productive activity.

Britain's biggest economic problem is, without question, our appalling record on productivity. There is no single answer to the productivity puzzle - the question itself is often misunderstood - but one or two things Osborne could have done to help. Manufacturing, as the sector which applies technology to natural resources, is the motor of productivity, but the government seems to have entirely given up the ghost on rebuilding Britain's manufacturing base.

Productivity would also be boosted significantly by higher wages. If employers are compelled to pay their employees more (whether through public policy or competitive market pressures), they are incentivised to get more out of their workers by investing in better technology and innovating in work processes.

The Budget had something to say about better pay - but the rebranding of the National Minimum Wage (NMW) as the National Living Wage is gimmickry of the highest order, designed only to soften criticism of the continuing downward pressure on wages rather than bring about real pay rises.

The move in effect represents a small increase in the NMW, but phased in only very gradually, and will not apply to under-25s. The most important impact of the measure, however, could be the undermining of the independence of the Low Pay Commission, which sets the NMW. It will also undermine the real living wage, also determined by independent experts, which is much higher than Osborne's version, and has played an important role in encouraging some employers to pay more to their staff voluntarily.

Wages would have increased anyway - as the labour market finally tightens - so Osborne's genius is in managing to steal the credit for meagre pay rises that were already happening, while dampening pressure on business to increase pay more substantively. This is not a recipe for increasing productivity.

Osborne no longer has the Lib Dem bogey man to blame. The Budget was his opportunity to set out his vision for a sustainable economic future for Britain. The most responsible thing he could do is to admit he does not have one.

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