An end to austerity?

I think of two things every time I see Nicola Sturgeon's picture. Firstly, I think of the caricature of her as Wee Burney from the Rab C Nesbitt TV show, which is cruel enough, or the one as Wee Jimmy Krankie, which is arguably worse as Jimmy is a woman pretending to be a man. I almost agree with the rather po-faced Guardian column by Peter Bradshaw which said the latter jibe was "not nice, not funny", though surely not, as he styled it "the single unfunniest joke in the history of English journalism".




And secondly, I can hear her Scots burr droning on calling for "an end to austerity". Which always makes me feel as if her hand is scrabbling in my pocket for the last of my loose change, because she means, of course, "as long as the English (and Welsh) pay for it".

Talking of which, I don't think I've ever seen anyone try to defend why Scotland get such a better deal than Wales.

So, will Nicola get her wish anytime soon? (I mean the end to austerity. The more I see of her I'll soon be ready to concede her other wish, a second Scottish independence referendum, any time she wants. Or better still, an English referendum on Scottish independence, after all why should it only be one way?)

I guess from reading David Smith in the Sunday Times (12 Feb) the answer is "no". Smith notes that the Institure for Fiscal Studies has published its "green" budget. This isn't anything to do with the environment, it's a detailed analysis of the UK's finances, which has been published for 35 years.

"The IFS pulls few punches in laying out the scale of Britain's fiscal challenge and left me feeling a little punch drunk." Wow! I've been reading Smith's economics column for a quarter of a century and I can't remember him saying anything quite like that before. He goes on to say that, seven years after the start of post-crisis deficit reduction, the budget deficit is the 4th largest, relative to GDP of the 28 advanced economies. Public sector debt is the 6th largest. It has not been higher relative to GDP since the mid 1960s. This despite a real terms fall in public spending of 10% since 2010, the longest and biggest on record, with more to come. By 2019-20, on present plans, real government department spending will be 13% lower than 2009-10. The £17bn of tax rises planned for this rest of this parliament will bring the tax burden up to 37% of GDP, the highest since early in the Thatcher government. Even then, there will still be a budget deficit.

Smith says he has always adopted a "something will turn up" view of public finances. The 1980s economic revival turned a budget deficit of 4.3% of GDP into a surplus in eight years. In the 90s the time scale was even shorter, Britain going from a deficit of 6.7% of GDP to a surplus in just 5 years.

This time the challenge was harder: a deficit of 10.1% of GDP in 2009-2010. It was down to 4% by 2015-16. But that is still high. It's projected to be 3.5% this year: in the six decades to 2008, Britain only ran a bigger deficit in 13 years, mainly in recessions.

So will something turn up this time? Smith doubts it, for the obvious reason. He says that, at a time when a growth boost would have helped public finances, the economy is expected to slow down. "The idea that leaving the EU would mean healthier public finances has been exposed for the fantasy it is".

This all looks very difficult when there are spending pressures in the NHS and social care and the government wants to increase spending on infrastructure (it would like it to be 21% of spending by 2020-21, compared with 13% in 2012-13). Smith comments that day to day spending pressures may make this increase in investment unachievable.

He says this is all rather gloomy. "The damage to the public finances from the financial crisis and the years of aggressive increases under Labour has proved enduring". Though he also says the coalition and the current government have bottled it (my paraphrasing!): "While spending cuts have been genuine, the pill has been sweetened for households and businesses. Some taxes have gone up, but others have been cut...There has been the long freeze on petrol and diesel allowance and the big raising of the income tax personal allowance....". In contrast, he says, the Thatcher government "meant business" on deficit reduction in 1981, freezing the personal allowance at a time of high inflation". They also whacked up VAT, I recall.

Smith expects that, because of demographic spending pressures kicking in the 2020s (I thought that had already started, but presumably we ain't seen nothing yet) we may have to get used to a world in which a 2% deficit, or even more, is the norm, with higher levels of government debt than we have been used to for more than half a century. "As long as the markets are prepared to lend what Britain needs to borrow, the debt and deficits will be manageable, though with a rising debt interest bill. If not, there will  be a problem".

I suspect "problem" is an understatement. Given all the above, if Brexit goes really badly, our trade balance gets worse rather than better and the economy does poorly hitting tax revenues, things could get pretty horrible in terms of the government's ability to provide for the services everyone expects, while protecting and policing us and acting like Father Christmas to countries which launch space vehicles (though maybe only some citizens expect the last of these to continue).

On the other hand, if Brexit goes really well then, paraphrasing Smith's words, that would be a turn up for the books - the Chancellor's books.

Hmmm. Looks like no end to austerity any time soon then, Nicola. Best concentrate on the second referendum, at least that's something you might win on. And, if you do and you get a yes vote, then in principle Smith's headaches will ease, because removing Scotland from the union would decrease the rest of the UK's deficit at a stroke.

I'm not being entirely serious here, as I expect separating Scotland would make Brexit seem easy and the transition would be painful and damaging. But every time I see Jimmy, sorry Nicola, I'm more prepared to contemplate it.