The pantomime season continues long after the xmas holidays. On Tuesday the Coalition's Bill instituting a Charter for Budget Responsibility was passed almost unopposed in the House of Commons, showing the government at least has a sense of humour.
The bill is ridiculous. It commits the government to a goal of balancing day-to-day spending - which the government seems to have confused with something called the 'structural current deficit' - by 2017-18. It would also ensure that debt is falling as a percentage of Gross Domestic Product (GDP) by 2016-17.
Neither target is remotely possible. To given an indication of the clownishness that passes for economic policy the Office of Budget Responsibility (OBR) has previously shown that there have been cuts equal to 5% of GDP on day-to-day spending. Yet the actual reduction in the deficit on this measure is just 0.4% of GDP. In plain terms, for every £50 in cuts the government is achieving just £4 in savings.
The reason for this is simple. The deficit is caused by economic weakness, in particular the weakness of business investment, made worse by a tax regime which offer high earners and big business huge tax breaks and subsidies. Cuts to government spending exacerbate that weakness and so cause areas of government spending to rise. In particular, there has been a surge in working families tax credits as the overwhelming bulk of new jobs are extremely low paid.
The government deficit is still around £100bn a year and has stalled here for a number of years under the impact of austerity. If anything like a ratio of £50 in cuts to achieve £4 in savings is maintained it is simply impossible to balance the budget even over the long-term, let alone in 3 years. Whole areas of government would have to be abolished even to get close.
The same holds true for the target of falling debt. The level of debt is accumulating because each year produces a new deficit, which must be funded by borrowing. To achieve real debt reduction would require very strong growth and budget surpluses, not the smoke and mirrors of repeated changes to accounting rules beloved by George Osborne.
Ed Balls called the Bill a gimmick, yet decided to play the back end of Osborne's pantomime horse by voting for it. With the fake recovery already running out of steam and a growing crisis in public services such as health and education, there are serious economic issues to be addressed. But the Charter for Budget Responsibility is just very unfunny clowning.