George Osborne’s ‘Emergency Budget’ on June 22nd 2010 quite impressed me at first.  We can earn another £1,000 before paying Income Tax, food and children’s clothes remain exempt from VAT and so are outside the coming hike from 17.5% to 20%, and the state pension will not be cut. The rise in Capital Gains Tax from 18% to 28% will apply only to those who pay Income Tax above the basic rate, i.e. a small minority.

After chewing it over for a few days, I am less and less convinced. The idea is to force the UK economy into a dramatic shift, away from dependence on consumer spending and towards a shiny, high-tech exporting economy on the German model. The unanswered questions include:

What are we going to make??

The World Trade Organisation allows us (big of them) to protect industries vital to national security. That means arms. We have protected our arms industries, which are modern and efficient. Are we going to ramp up arms exports? That will make the world a safer place!

Who is going to buy our exports??

Dictators anxious to bolster their armed forces to stay in power?

The whole of the Eurozone is suffering from the financial wobbles caused by Greece, Spain, Ireland and, probably quite soon, Italy.  Eurozone countries are not going to import more stuff from the UK. The Chinese government is awash with dollars, but while it may be interested in highly specialised exports, China will not want mass freight from the British Isles. Your ideas are welcome.

Who is going to finance the re-industrialisation of the UK?

The banks aren’t interested, as opportunities for big profits would be slim. If the government had a mind to make Royal Bank of Scotland (RBS), which it controls, serve primarily the national interest, it might be a different story. But the plan is to sell the state’s holdings in RBS, Lloyds Banking Group and Northern Rock back to the private sector, when the time seems right.

Are taxpayers going to stump up the cash? No chance, our higher taxes are destined to help plug the chasm between our government’s income and its expenditure.

Are we expecting transnational corporations to build new factories here? Why should they, when Vietnam, Brazil et.al. look more enticing, and have cheaper workers.

Of course, the mass unemployment likely to result from the coming slash and burn approach to public spending would force wages down, and thus Income Tax revenues would suffer too. The phased reduction in Corporation Tax announced in the Budget, from 28% to 24% over four years, and intended to attract businesses, will create long-term jobs only if there is an expanded market for the UK’s products and services (and let’s not stake our future on casino banking).

It looks to me as though this could be a disastrously Thatcherite budget, not that surprising as George Osborne is a Tory chancellor, although I think the sops to the Liberal Democrat coalition partners have, to an extent, disguised the coming pain. This ‘Emergency Budget’ had scarcely anything to say about mitigating climate change, or encouraging co-operative and not-for-profit ventures to help local people meet their own needs,  or facing up to Peak Oil and the inevitable limits to growth.

Bad luck, LibDems. You recognise these issues, but your voice was not strong enough.

Money has defined the post-1945 world: how to acquire it, invent it, keep it, spend it. Money conferred power, status, legitimacy. Maybe this has been so since the first settled communities thousands of years ago. The second half of the 20th century, though, saw an important sophistication develop, the ascent of money as a commodity class, containing expansive portfolios of elaborately designed gambling products that made small numbers of people exceedingly rich, all the while damaging the economic prospects of everybody else. (more…)