[Closed] Fiscal charter

oops wrong forum - can a mod move please (or someone report it for me)

"conservatism"?
hmmmmmm.....

[img] :large[/img]

Post, politely, reported for you AS 🙂

Yes, but he'd describe that as not 'normal economic times' 🙂

Ah, the "Golden Rool"
Where have we seen that before?

The Golden Rule in the United Kingdom[edit]
The Golden Rule was one of several fiscal policy principles set out by the incoming Labour government in 1997. These were first set out by then Chancellor of the Exchequer Gordon Brown in his 1997 budget speech. Subsequently they were formalised in the Finance Act 1998 and in the Code for Fiscal Stability, approved by the House of Commons in December 1998.

In 2005 there was speculation that the Chancellor had manipulated these rules as the treasury had moved the reference frame for the start of the economic cycle to two years earlier (from 1999 to 1997). The implications of this are to allow for £18 billion - £22 billion more of borrowing.[1]

The Government's other fiscal rule is the Sustainable investment rule, which requires it to keep debt at a "prudent level". This is currently set at below 40% of GDP in each year of the current cycle.

As of 2009, the Golden rule has been abandoned.

Typically for Osborne, it was always just a political stunt that was economically meaningless.

Again... typically for Osborne it was a very clever one though.

In reality, setting yourself an arbitrary economic straightjacket, that must be rigidly adhered too, is an absolutely bloody stupid idea. And you can bet your arse that at the first sign of another economic crisis, it'd be dropped like a hot turd, by whichever government was in power. Because it would have to be!

But when he set this trap last year, he knew all that full well. He did it anyway, because it suits his agenda, so that he can get all his mates in the right wing press to scream their ridiculously over-simplified narrative about Labours fiscal irresponsibility, when its actually nothing of the sort.

In fact its the polar opposite. Leaving all your options open is fiscally responsible. Throwing out half the economic tools at your disposal is just bloody daft!

But when he set this trap last year

I liked Dan Hodges description:

Four months ago, George Osborne set a trap for the Labour Party. We know this because he stood up in the House of Commons and said “I’m going to set a trap for the Labour Party”. The he walked around the Dispatch Box, took out a shovel, and began to dig a big hole just in front of the Labour front bench. As he was doing so, he said: “Labour front bench. This is the trap I’m digging for you. It’s this big hole right in front of you.” Then he took out a big sign. The sign read: “Giant Labour Party Trap.” And he placed it right next to the hole. Then he went and sat back on the Government bench.

“Don’t you think you’re being a bit obvious with this trap of yours, George,” David Cameron whispered to his Chancellor, upon his return. “No David, don’t worry. This is the Labour Party. They will fall for it. Trust me,” Osborne responded. “But you’ve just told them what you’re doing,” Cameron pressed. “And they’ve just seen you digging the hole. And you’ve put a big sign by the hole saying 'Giant Labour Party Trap'. At which point George Osborne patted his colleague reassuringly on the shoulder, and soothed: “Seriously. Don’t worry, David. This is the Labour Party. They will fall for it. Just you wait and see."

Poor Dan Hodges, that's funny, but his columns are getting increasingly hysterical.

I too, cannot believe that Corbyn and McConnell (well, just McConnell) have decided to reject the charter without coming in with some sort of alternative version which suggests fiscal competence more compatible with their own social vision.

Is Corbyn turning up to PMQs this week?

The longer he's chancellor the more apparent it is that Osborne hasn't got a clue what he's doing. Again on the radio this morning they had a Tory MP banging on about how Labour got them into this mess and the tories are getting them out of it. Anyone who has even a moderate understanding of economics know this is BS, so why the press let them get away with continuing to say unquestioned is baffling.

Ironically, with uber low interest rates and poor growth, it's just the right conditions for Keynesian investment in infrastructure to stimulate growth, so going for a fiscal straight jacket is just pouring petrol on the fire (of low growth).

Dan Hodges has pretty much nailed it there.

They can't help themselves, can they?

It must be like shooting fish in a barrel for Osborne

Sorry, that should say "hasn't got a clue what he's doing to the economy", he's clearly very switched on politically.

that Osborne hasn't got a clue what he's doing. Again on the radio this morning they had a Tory MP banging on about how Labour got them into this mess and the tories are getting them out of it.

Getting his MPs to repeat that mantra ad nauseam suggests that Osborne knows exactly what he's doing. Tagging the Labour Party with 'fiscally irresponsible' has proved very successful for the Tories, so they'll carry right on with it.

The longer he's chancellor the more apparent it is that Osborne hasn't got a clue what he's doing.

Economically? He never has. He just got lucky.

Politically? You're joking, right? He's the shrewdest, cleverest, and most ruthless political operator Westminster has seen since the rise of Blair. He's proved it yet again today

See my later update. Politically he's a mastermind. He's going to screw the country to get himself into power though. Which is depressing. The fact the press prop him up is also depressing.

Economically? He never has. He just got lucky.

He's not quite at the Gordon Brown level of getting lucky with the economy while Chancellor. Not sure anyone would want to inherit the chair during that kind of global recession.

Economically? He never has. He just got lucky.

I'm not sure he got lucky. I've yet to see a positive impact of anything he's done. If there were a positive impact he might go about promoting that rather than slagging off labour ad infinitum.

If there were a positive impact he might go about promoting that rather than slagging off labour ad infinitum.

It's easier to go negative on your opponents than try to convey some marginal improvements coming out of a recession.as a great economic victory.

So what should Labour do?
a) Oppose it knowing that their reasons for opposing wont be told - just that they don't support 'balancing the books'.

b) Vote for it, appear that they are in support of 'balancing the books', but then (if they regain power) get rid of it and again be accused of being fiscally irresponsible?

I dont think he got lucky as he missed all his targets and basically did what labour suggested we do at the 2010 election.
What he is good at is having the media on his side to spin it all as a success and that the tories , failing to do what they said they would do and doing what labour said to do, are the ones to be trusted on the economy.

Agree it was a trap [ clever /good politics if you like that sort of thing] and labour have been foolish to act as they have by U turning into it as well.
Agree GO is shrewd in an Alan B'stard style

@alexsimon - this is why he's such a good politician, he's set it up so that whatever Labour do they look bad. One of the difficulties of being in opposition. The best thing Labour can do is get as many of their MPs out and about using the line that Binners had above that giving yourself a straitjacket it fiscally irresponsible.

b

because the Tories can scream 'fiscally irresponsible' at you all they like from the opposition benches. They'll be there for 5 years. Getting elected is what counts. Ask George.

In the meantime, the phrase 'choose your battles' springs to mind. George chose this one for them last year. They should have just said 'yeah... whatevs' and signed up to the lot.

People aren't stupid. they know full well labour wouldn't stick to it. The Tories won't either. its a pointless piece of political posturing. And the labour party has just been dry humped by George. I expect that if they're so naive that they walked blindly into this clearly signposted elephant trap, then they best get used to that. And get used to being in opposition for a loooong time.

Malcolm would never have let this happen...

[img] [/img]

I'm not sure they blindly walked into it, more that it was at the end of the conveyor belt they're already on and they struggled to get enough momentum to run backwards along said conveyor belt (mainly because the last 5 years haven't been spent screaming that the tories have made this whole story up).

I think Binners is correct again on this point

It was stupid by Labour to walk into the trap

Just support it and argue now is not ordinary times - which is rather easy to do - hence they would spend more now.

But if they choose 'b', whenever they say they're anti-austerity, they'll be asked how they are going to pay for it within the limits they 'agreed' to.

Dan Hodges nailed it in the first 2 paragraphs:

John McDonnell is a fan of straight talking, honest politics. So he’ll appreciate the following observation. John McDonnell is a useless, incompetent, joke of a politician who should not be given responsibility for making the tea in his local constituency office, let alone hold the office of shadow chancellor of the United Kingdom.
The man is not a dangerous Left-wing ideologue, he is a clown. Actually, he’s both. He’s a dangerous Left-wing ideological clown. He should turn up to his first session of Treasury questions with a false nose, make-up, and giant floppy red feet. Then he should change his name from John McDonnell to Ronald McDonnell.

He just got lucky.

Don't they all see Brown as well. I mean how much power has one man got to make things magically better. The can **** it up that's for sure, but to make it better, hmmm, I'm not convinced.

Surely what Labour should have done on Osborne's trap is simply abstained and in effect said we aren't playing your game. They could have used that to beat the Tories and SNP, instead it is the Tories and SNP giving them a beating.

But if they choose 'b', whenever they say they're anti-austerity, they'll be asked how they are going to pay for it within the limits they 'agreed' to.

I think its whats commonly referred to as being stitched up like a kipper. What you most definitely don't do is go for a) then come back a week later and say 'sorry, I've changed my mind, I meant b)'

Dan Hodges nailed it in the first 2 paragraphs:

Well, obviously he didn't. Probably this was ineptly handled, but the fact remains that the "fiscal charter" is naive at best from an economics point of view. I think even THM would agree with that.

I think its whats commonly referred to as being stitched up like a kipper. What you most definitely don't do is go for a) then come back a week later and say 'sorry, I've changed my mind, I meant b)'

Labour did screw up the economy though, and long before the global economy imploded and we hit recession Brown had taken us from a period of balancing the books from the previous outgoing government, into living way beyond our means (i.e. screwing up the economy). As a direct result of this incompetent mismanagement of the economy, we were in no position to deal with the recession when it did hit. These things happen, its a fact of life, and governments don't necessarily have any control or influence over them - so all the more reason to manage the economy with that uncertainly in mind so you are better prepared when (not if) they do happen. You can blame luck if you like, but there is a usually a good reason why some people are luckier than others.

The current goverment are dealing with the deficit, not as quickly as they'd like but the deficit has been massively reduced. So you either to to believe that we run the country in a balanced way or believe we should always run it in a deficit. I think we now have a clear difference between the tory's and labour on this one now.

@Stoner IMO the important point is what that graph would have looked like under Labour

@footflaps indeed conditions may be suitable for investment but the issue is whether we have the ability to do and what the downsides are. If you borrow to stimulate growth (or just keep borrowing to maintain spending) and it doesn't work you have a situation with much higher debt levels and a sick economy. At that point you may well find the supply of funds to continue borrowing / maintaining your current debt levels dries up, then you are bust/off to the IMF/required to conduct even more aggressive cuts. France under Hollande tried to buck the "austerity" trend and even tired to pressure Germany into relaxing the borrowing rules but the policy didn't work, France is still suffering as a result.

Labour quite rightly felt signing up to the charter was the right thing to do and smart politics (need to restore financial credibility identified as a key weakness at the GE). McDonald has decided for political reasons he won't sign up but it's a technical difference, a 5 year timetable he supports versus the 3 year one proposed by Osbourne.

[img] [/img]

Labour did screw up the economy though, and long before the global economy imploded and we hit recession Brown had taken us from a period of balancing the books from the previous outgoing government, into living way beyond our means (i.e. screwing up the economy).

Aaah. I see. Thanks for pointing that out. From looking at the actual facts I was getting the wrong idea.

So what is the fiscal charter?

Greater transparency over fiscal policy (tick)
Creation of independent OBR (tick)
Commitment to [b]cyclically-adjusted [/b]current balance within a set time period (tick)
A reduction in public sector net debt (tick)
Create a cap for welfare spending (tick)
Recognition that fiscal and monetary policies are coordinated (tick)

as opposed to

Lower transparency over policies where UK has weak track record
No independent body for statistics
No understanding of basic Keynesian economics
An increase in PSND
No cap on welfare
Uncoordinated policies

Hmmm....tough choices. A great trap indeed 😉

Ball's version of the same trap

So my message to my party and the country is this:

Where this government has failed, we will finish the job.

We will abolish the discredited idea of rolling five year targets and legislate for our tough fiscal rules within 12 months of the general election.

Tough fiscal rules which will be independently audited by the Office for Budget Responsibility.

We will get the current budget into surplus as soon as possible in the next Parliament.

How fast we can go will depend on the state of the economy and the public finances we inherit.

And because we will need an iron commitment to fiscal discipline, I have also asked the Office for Budget Responsibility to independently audit the costing of every individual spending and tax measure in Labour’s manifesto.

??

@wobbliscott - well done, you have swallowed all the tory rhetoric about how the current situation was created by the last Labour government. Instead, you could go away and look at the facts, but that would be far too difficult. This is a prime example of how Osborne is a shrewd politician.

Hmmm....tough choices. A great trap indeed

Well, it would be less of a trap if the choice was as you describe it. Who defines what "cyclically adjusted" means? Why should there be a defined cap on welfare spending? - surely we should spend what needs to be spent in the circumstances, intelligently judged as they arise? Likewise public sector net debt. Being opposed to the package does not mean having an intention to go against every element of the package.

I thought you were above this sort of thing. At this rate you will have to join chewy and jamba on the "ignore" list.

J McD probably eyeing the Scottish vote first in truth

After all wee Nicola has the answers...

Cyclically adjusted or structural balances seek to provide a measure of the fiscal position that is net of the impact of macroeconomic developments on the budget. This approach takes account of the fact that, over the course of the business cycle, revenues are likely to be lower (and such expenditure as unemployment insurance benefits higher) at the trough of the cycle. Thus, a higher fiscal deficit cannot always be attributed to a loosening of the fiscal stance, but may simply reflect that the economy is moving into a trough. Essentially, calculation of a cyclically adjusted or structural balance involves an estimation of what revenues and cyclically adjusted expenditure (and thus the deficit) would be if the economy were at its potential or--for some measures of the structural balance--its trend output, rather than its actual output

Good enough?
Caps - look at the trend, the answer is obvious. Its like "time"

Please feel free to ignore.....

At its simplest (Kenyes 101), governments ideally run budget surpluses during periods of stronger economic growth (caveats above noted) in order to support deficits during periods of weak growth. In that way (some believe) that governments can manage/smooth trends in aggregate demand (apologises for some gross simplification)

In practice, we prefer to run sustained government deficits - and why not, bring forward consumption and delay payment is a vote winner!

Good enough?

Nope - all entirely subjective and thus amenable to "interpretation" by anybody.

At its simplest (Kenyes 101)

The reason these things are in "101" is that the real world is more complicated and saved for 201 etc.

shhhh - it's PMQs

as I guess is this

3.30 If the welfare cap is found to be breached in one or more of the years in which it applies, there will be a debate on a votable motion led by the Department for Work and Pensions, normally within 28 sitting days, giving an assessment of the reasons for the breach. The Department for Work and Pensions will:
• propose government policy measures which will reduce welfare spending to within the level of the cap;
• [b]seek approval for the level of the welfare cap and/or margin to be increased, along with an explanation of why this is considered to be justified; or
• explain why a breach of the welfare cap is considered justified.[/b]

Madness eh???

Nope - all entirely subjective and thus amenable to "interpretation" by anybody.

How about bringing some objectivity to the table then?

yup, the use of the word "cyclical" effectively means that they can do whatever they want whenever they want as they're defining the cycle themselves. So this is a meaningless piece of politics (economically speaking), which solely exists to stuff up the opposition by making them look bad however they react to it.

Also, when did Osborne become a supporter of Keynes? He's been pushing deficit reduction in a period when Keynes would advocate spending. Oh, is it because his previous attempts at deficit reduction haven't worked?

Indeed odd that GO is running one of the most expansive fiscal policies in the developed world - austerity economics eh?

Equally odd to knock the OBR - they are the body that has the data that falsifies the idea of Labour profligacy pre crisis. Worth reading their stuff!!

link to the data which supports that?

Also an expansionary fiscal policy =/= Keynes (not in the generally understood sense anyway)

Where have I knocked the OBR? I'm saying his current Fiscal Charter is balls, not the OBR.

austerity economics eh?

That is reserved for the folks at the bottom.

even though the stats also falsify that point too?

never mind...what was the expression, "I thought you were above that kind of thing" 😉

Anyway - bon appetite! Lunchtime beckons!

[quote=teamhurtmore ]Anyway - bon appetite! Lunchtime beckons!

Meeting anybody interesting?

Also an expansionary fiscal policy =/= Keynes

Very true

(not in the generally understood sense anyway)

Sadly untrue. Talking of Balls...

The article started by saying Tony Blair and Gordon Brown will
“ceremoniously ditch Labour’s traditional ‘tax, spend and borrow’
image this week, in a fundamental re-positioning of his party’s
economic strategy.”

All under the headline… Labour Ditches Keynes.

As someone who had only recently studied ‘New Keynesian’ economics at
Harvard, with Democrat Keynesians like Larry Summers and Republican
Keynesians like Greg Mankiw, I must admit I was pretty appalled to see
the greatest economist of the twentieth century traduced like that.

But the fact was that in the Monetarists versus Keynesians economic
debates of the 1970s and 80s, the label ‘Keynesian’ had become –
certainly in Conservative circles – a dirty word: profligate,
irresponsible, statist, inflation-loving, not to be trusted.

A caricature that clearly could not be allowed to be a Labour
caricature if we were to go on and win the 1997 election.

And what has been so striking to me over the past year listening to
right-of-centre politicians and commentators – in Britain, America and
Europe too – is how much the austerity debate has been used to try to
reprise those old ideological divides.

Warn about the risks of deflationary fiscal policy – and that makes
you a ‘deficit denier’.

Worry about the dangers of all countries trying to cut their deficits
at once – and you are a ‘deluded Keynesian’.

Counsel that the world needs a plan for growth as well as deficit
reduction – and you are ‘an irresponsible deluded Keynesian deficit
denier’.

[b]Keynes himself must be turning in his grave.
[/b]
For, as has been fully documented in Lord Skidelsky’s biography, the
real Keynes was no profligate tax-and-spender. He would have had no
time for some of his disciples.

Anyway, political tribalism aside.

At best it's stupid, it compels the Government to reach a surplus by 2020, which has been at the top of their published goals since 2009 politically no body cared about the deficit pre-crash - neither side of the house. So It adds nothing to the party. It also calls for this to continue post-2020, if they lose the next election it counts for nothing.

At worst, it's dangerous, politically they won't want it to fail so they will be compelled to stick to it after it's sensible to set it aside, massive natural disaster, financial crisis, war, famine - first reaction will be to hold back, fearing the fall-out.

Perhaps worse still, it allows them to cut investment that would otherwise be sensible, citing the charter - it's only going to be binding as long as it's politically useful to them.

Labour were stupid to agree to it in the first place, economic policy should be fluid to react to the current situation with an eye on the future - not based on political ideology from the past. It's already blown up in Labours face, but that won't be nearly as bad if some of the Tory back benchers start to wobble. The SNP are dead against it.

even though the stats also falsify that point too?

That will be a relief to the victims of tax credit cuts - their hardship is statistically insignificant.

If my memory serves my correctly, the charter only focused on the current account

Yes, some people will lose out from the cut in tax credits - the IFS has some supporting analysis

The Conservatives are cutting back on some channels of public expenditure (healthcare, public services etc) and investing in infrastructure projects as a way of stimulating the economy. It's the American model of Keynesian economics. They're still spending a lot but being ideologically selective about where they spend by utilising the private sector. The 'Austerity' thing is just spin.

Hodges was right about the trap to a large extent

Considering Labour invented the trap in the first place, it is even more silly to fall into it. When similar proposals were touted in Labour's fiscal responsibility bill, Osborne described them as vacuous and irrelevant.

Fail to learn your own lessons from history!!!

The 'Austerity' thing is just spin.

😉

Wow you just criticised the conservative party for not learning instead of just using it to criticise labour when both sides have flip flopped

Well done for achieving the non political impartiality you so often preach about. 😛

I dont think he got lucky as he missed all his targets and basically did what labour suggested we do at the 2010 election.

I'm not necessarily going to disagree there - however Labours reaction to that was not to recognise that and say 'told you so' and then support those plans, it was to double down on their own bet and keep shouting 'too far, too fast' with a strange head wobble. Thus, when Osborne came out of the other side without the much vaunted double or triple dip recession actually happening, it's impossible for Labour to claim the victory.

Balls was pretty close to be the most accurate commentator though -flatlining was a pretty good description in the end!

His writing > his pugnacious character in HoCs

Only 21 abstentions

At least Newsnight has started showing Osborne's volte-face

Embarrassing, embarrassing, embarrassing, embarrassing, embarrassing ...yes, of course it is.

😀 at least that is straight and honest!!

Can't help feeling that GO has set a trap for himself too. Newsnignt is comical now listening to the two MPs. Kirsty's having fun!!!

The most incisive intervention from the Labour benches came from Jonathan Reynolds, who left Tory MP Mike Wood almost speechless when he said: "No Conservative government in history has ever hit the target being presented to Parliament tonight.

"All those historical Conservative governments - none of them have run surpluses according to this fiscal charter.

"Were the Conservative governments of Harold Macmillan, Margaret Thatcher, were they not economically credible?"

Mr Wood replied: "I'll leave that. I'm not sure that even dignifies..." before trailing off.

😆