I have had it up to here with the Budget (you cannot see, but I’m holding my hand up to my forehead), having tweeted my fingers raw on the subject, and written 385 words in 19 minutes for a magazine.

My brief reaction is: I heard loads of micro-things from Darling, all of them adding up to “support for investment”.   MoneySupply at the FT has 50 different items, from the questionable ‘forcing banks to lend’, to the substantial £2bn Green Investment Bank, from a tiny £35m for University Venture Capital to £5bn in cuts.  All in all I think this was an attempt to do what Michael Burke called for: invest.

Yes, there was missing detail on spending cuts, and the usual optimism about efficiency gains. Chris Giles is scathing about the former. But as Ed Conway explains in more detail, it all adds up to quite sensible.  The deficit improvements have nearly all been banked.  Investment is more about pushing the private sector in that direction than the government doing it alone.  So measures such as doubling the annual investment allowance,  and bringing all the various schemes they have under an umbrella called “UK Finance for Growth”.

So, in many ways fussy and micro, but insofar as it risked public money, it tried to do the right things. Like David Smith, I suspect a lot of people in small businesses will like it.

You would not be surprised that I was annoyed by Cameron’s response, which seemed to be 28 variations on the theme “isn’t the debt big?”   Above all I found annoying his cynical use of money illusion.  That is: comparing cash amounts over very different eras.  In his speech/response, he says:

In this, an election year, they are borrowing £167 billion  we’re meant to be impressed that it’s turned out a few billion lower than the last disastrous forecast….but it is still, and honourable members should be ashamed of this, it is more than every single previous Labour Government has borrowed – put together

But this is because when Labour were last in power, the price level was about a quarter of where it is now.  And continuously growing cash GDP meant that you did not get sudden revenue collapses like we have just had.  The comparison is very odious.   The Labour government before that – in, say, 1967, had the RPI index at about 18 (1987 = 100), while it is about 220 now.   If you wanted to, and were very cynical, you could quite easily say daft things like:

“Mr Deputy Speaker, is the House aware that this year the Labour government is going to spend more on debt interest than it did on every item of expenditure in 1967? That is the year we were forced to devalue, humilatingly chased off a currency peg by Gnomes from Zurich.    Labour under Brown is borrowing more than the entire revenues of 1976, the year we had to crawl to the IMF.  This Labour government has outdone every shameful Labour precedent, and deserves to be chucked out, just  like every other failed Labour government”.

Using this sort of technique is pathetic.  Conservative Central Office is full of people who understand money illusion – this is not ignorance, but cynicism.  Perhaps Oppositions are always like this – but a wonk expecting the Serious Party to come in is rather dismayed by it.

[UPDATE.  Ben Chu has blogged on this, and shows, dismayingly, that Philip Johnston really falls for this rubbish.

And: I realise I have missed a major opportunity to use Doctor Evil to prove a point.  If Number Two understands the diminishing value of a million bucks, surely the Tories can?* ]

The other thing that dismayed me was this piece of outrage:

The Chancellor told us, standing there at the dispatch box, his forecasts were the same as the Bank of England, they’re not, the Bank of England is forecasting 3.1% this year and 3% next year, with his forecast at 3.5 %, you used to have to go through the fine print to find before you found out the rubbish in the budget, this time it came straight from the dispatch box.

This is a terrible exageration. Go to the Bank’s projections from Feb.   You will see all sorts of ranges.  Cameron has picked the very lowest one – that which depends on market expectations of rates rising, and using the mean, not the median.  Even then, GDP growth in Q3 2011 is 3.12% mean, 3.57% mode.  If the Bank keeps QE and rates constant, the growth is much higher. Compare to the Treasury estimats as well:

Since its CPI projections on the latter scenario put inflation at 1.7-2.1% in 2012, there is little reeason to think that the Bank does not believe such growth rates are possible.  We have a great deal of economic slack to absorb – which we can absorb, so long as we invest.


*In fact, in the last few days I have met a highly intelligent and switched on member of their Treasury team. My guess is that such sorts don’t get through to the leader as often as we’d like


9 thoughts on “Cameron’s money problems

  1. Quite. Cameron’s fond of telling Gordon Brown that “people aren’t fools”. But who’s the one expecting the public to swallow meaningless statistics?

  2. What you need to remember Giles is they are not speaking to you. The narrative is aimed at the general public to scare them with big numbers.

    Expect a big spike in gilt yields tomorrow and the press will wrongly put it down to the budget. It will have nothing to do with the UK budget and everything to do with a terrible US Treasury auction. The tail had to go to 2.61 for a note that was yielding 2.41 in the secondary market. Very low demand from indirect buyers. Was China trying to teach the Americans a lesson?

    1. That is an amazing insight. I will tell everyone they read it here first, if it happens.

      I tend to watch the June Long Gilt future. Is that the thing to do?

  3. The whole “oh, aren’t the numbers big” thing winds me up too. This time last year I was approached at about 6:30pm in a prominent Hampshire shopping centre and asked to be on BBC South Today’s live piece on the budget. Little did they know that I actually knew some economics, and when asked a question to which the answer was meant to be “gosh, it’s a very big number” I started going on about the sentiment in the bond market. All got a bit awkward, and ended with the idiot reporter man asking if it was a good time to buy a house, which I argued depended on whether you needed somewhere to live…

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