The truth about those cuts, part 79

The best letter I’ve read in a long time . . .

From the Guardian's letters page today:

Let me just make sure I've got this right. First of all, a bunch of bankers lose unimaginable amounts of our money by making bets on a bunch of dodgy mortgages. Eventually the banks realise the bets are based on worthless assets, and that technically they are bankrupt.

The government bails them out with billions of pounds, transferring the debt to the public sector. The bankers, full of gratitude, pay themselves multimillion-pound bonuses which they invest in such a way as to pay as little tax as possible.

We express our anger by voting out the government and replacing it with a new one, which promptly blames the debt on the profligate spending of its predecessor, and tells us that the only solution is to cut public services. Civil servants lose their jobs, unemployment rises, libraries are closed, support services for the very poor, the dispossessed and the desperate disappear. Those who caused this mess in the first place get away with it, and are probably already planning the next disaster.

Are we really that gullible?

Matt Nicholson

Bristol

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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George Osborne's surplus target is under threat without greater austerity

The IFS exposes the Chancellor's lack of breathing space.

At the end of the last year, I noted how George Osborne's stock, which rose dramatically after the general election, had begun to plummet. His ratings among Tory members and the electorate fell after the tax credits imbroglio and he was booed at the Star Wars premiere (a moment which recalled his past humbling at the Paralympics opening ceremony). 

Matters have improved little since. The Chancellor was isolated by No.10 and cabinet colleagues after describing the Google tax deal, under which the company paid £130m, as a "major success". Today, he is returning from the Super Bowl to a grim prognosis from the IFS. In its Green Budget, the economic oracle warns that Osborne's defining ambition of a budget surplus by 2019-20 may be unachievable without further spending cuts and tax rises. 

Though the OBR's most recent forecast gave him a £10.1bn cushion, reduced earnings growth and lower equity prices could eat up most of that. In addition, the government has pledged to make £8bn of currently unfunded tax cuts by raising the personal allowance and the 40p rate threshold. The problem for Osborne, as his tax credits defeat demonstrated, is that there are few easy cuts left to make. 

Having committed to achieving a surplus by the fixed date of 2019-20, the Chancellor's new fiscal mandate gives him less flexibility than in the past. Indeed, it has been enshrined in law. Osborne's hope is that the UK will achieve its first surplus since 2000-01 just at the moment that he is set to succeed (or has succeeded) David Cameron as prime minister: his political fortunes are aligned with those of the economy. 

There is just one get-out clause. Should GDP growth fall below 1 per cent, the target is suspended. An anaemic economy would hardly be welcome for the Chancellor but it would at least provide him with an alibi for continued borrowing. Osborne may be forced to once more recite his own version of Keynes's maxim: "When the facts change, I change my mind. What do you do, sir?" 

George Eaton is political editor of the New Statesman.