My fantasy chancellor would announce a new path for fiscal policy

Autumn Statement wishlist.

Thinking ahead to the Autumn Statement, you can imagine a Balls/Cable alternative reality where the chancellor is a social democrat and Keynesian. Or you can consider what gentle nudging of the tiller the present incumbent might plausibly countenance.

The first option is a lot less gloomy.  With the economy and the public finances now totally at sea, my fantasy chancellor will announce a new path for fiscal policy. There would be a short-term stimulus, starting with a cut to employers’ national insurance and a massive public investment programme. Capital spending which guarantees a future revenue stream, such as house-building, would be ignored when it comes to plans for the national debt, meaning the government could promise a million new homes over five years.

There would still need to be very painful fiscal consolidation over the medium-term, but not on George Osborne’s terms. His plans assume that almost all the burden should be borne by spending cuts not tax rises, and his fiscal rules force him to squeeze the deficit faster and deeper than is likely to be needed for long-term sustainability. The result is a plan to permanently shrink the size of the state as a share of GDP.

A centre-left government would declare that its aim was to return public spending to its long-term trend not to ‘overshoot’. That would mean taking a bit longer to cut the deficit and raising more taxes, especially from wealth and land. There would still be very difficult and controversial decisions because even a decade of flat spending would mean many individual cuts. A Fabian Society commission has just launched to consider how the tricky trade-offs could be made.

But what of the real Mr Osborne? His reputation depends on him rejecting almost everything I have said. He knows however the Liberal Democrats will demand he finds more ways to tax high-earners, even if it is simply by adding a few bands to the council tax. He could also accelerate the capitalisation of his two putative public investment banks. On specific spending cuts, he should desist from a fresh assault on his ‘undeserving’ shirkers, for although the focus groups tell him it’s good politics, over time he reinforces the ‘nasty party’ image the Tories must shed to win centre-ground votes. Perhaps, on cuts, Osborne should simply pause and take stock; after all, does he really need to set a budget for April 2015 this week?

Andrew Harrop is the General Secretary of Fabian Society

The government could promise a million new homes over five years. Photograph: Getty Images

Andrew Harrop is general secretary of the Fabian Society.

Getty
Show Hide image

In your 30s? You missed out on £26,000 and you're not even protesting

The 1980s kids seem resigned to their fate - for now. 

Imagine you’re in your thirties, and you’re renting in a shared house, on roughly the same pay you earned five years ago. Now imagine you have a friend, also in their thirties. This friend owns their own home, gets pay rises every year and has a more generous pension to beat. In fact, they are twice as rich as you. 

When you try to talk about how worried you are about your financial situation, the friend shrugs and says: “I was in that situation too.”

Un-friend, right? But this is, in fact, reality. A study from the Institute for Fiscal Studies found that Brits in their early thirties have a median wealth of £27,000. But ten years ago, a thirty something had £53,000. In other words, that unbearable friend is just someone exactly the same as you, who is now in their forties. 

Not only do Brits born in the early 1980s have half the wealth they would have had if they were born in the 1970s, but they are the first generation to be in this position since World War II.  According to the IFS study, each cohort has got progressively richer. But then, just as the 1980s kids were reaching adulthood, a couple of things happened at once.

House prices raced ahead of wages. Employers made pensions less generous. And, at the crucial point that the 1980s kids were finding their feet in the jobs market, the recession struck. The 1980s kids didn’t manage to buy homes in time to take advantage of low mortgage rates. Instead, they are stuck paying increasing amounts of rent. 

If the wealth distribution between someone in their 30s and someone in their 40s is stark, this is only the starting point in intergenerational inequality. The IFS expects pensioners’ incomes to race ahead of workers in the coming decade. 

So why, given this unprecedented reversal in fortunes, are Brits in their early thirties not marching in the streets? Why are they not burning tyres outside the Treasury while shouting: “Give us out £26k back?” 

The obvious fact that no one is going to be protesting their granny’s good fortune aside, it seems one reason for the 1980s kids’ resignation is they are still in denial. One thirty something wrote to The Staggers that the idea of being able to buy a house had become too abstract to worry about. Instead:

“You just try and get through this month and then worry about next month, which is probably self-defeating, but I think it's quite tough to get in the mindset that you're going to put something by so maybe in 10 years you can buy a shoebox a two-hour train ride from where you actually want to be.”

Another reflected that “people keep saying ‘something will turn up’”.

The Staggers turned to our resident thirty something, Yo Zushi, for his thoughts. He agreed with the IFS analysis that the recession mattered:

"We were spoiled by an artificially inflated balloon of cheap credit and growing up was something you did… later. Then the crash came in 2007-2008, and it became something we couldn’t afford to do. 

I would have got round to becoming comfortably off, I tell myself, had I been given another ten years of amoral capitalist boom to do so. Many of those who were born in the early 1970s drifted along, took a nap and woke up in possession of a house, all mod cons and a decent-paying job. But we slightly younger Gen X-ers followed in their slipstream and somehow fell off the edge. Oh well. "

Will the inertia of the1980s kids last? Perhaps – but Zushi sees in the support for Jeremy Corbyn, a swell of feeling at last. “Our lack of access to the life we were promised in our teens has woken many of us up to why things suck. That’s a good thing. 

“And now we have Corbyn to help sort it all out. That’s not meant sarcastically – I really think he’ll do it.”