Monday, November 12, 2012

With Its Economic Policy Failing, UK Chancellor to Use Accounting to Reduce Deficit Computation

When the Fiscal Going Gets Tough, Conservative Government Resorts to Tricks

Those with an interest in economics and fiscal policy have been following the experiment in economic policy in Britain with a fair degree of interest.  There the government has decided that reducing the deficit is the policy goal that trumps all others, including economic growth, reducing unemployment, making people’s lives better and the like.  To do this the government has enacted policies to cut spending and raise taxes on working people, with the idea of what Paul Krugman calls the “confidence fairy” will emerge and business confidence will stimulate business investment.

It hasn’t worked.  So now the government is going to count as its revenues the surplus that is generated by the Bank of England, the central bank of Britain.

George Osborne has decided to grab the surpluses being built up under the Bank of England’s money-printing operations and use them as government revenue, making it easier for the chancellor to meet his rules on public finances.

None of this has anything to do with real money, it is simply an accounting change to make the deficit looks smaller.  Why do they need to do that?

With less than a month to go to the Autumn Statement, where Mr Osborne will be forced to admit the economy and public finances are in a dire state, the move will mitigate some of the damage.

And of course even those involved admit there is no substance here.  In fact it may make things worse later on.

That surplus is likely to turn into a loss once the BoE starts to raise interest rates and the Treasury’s move is to book the profits now and allow a future government to pay for the losses later.

But for now the Conservative government of Britain can cover up their policy failures.  Isn’t that the goal here?  And yes, the opposition Labour party would have done the same when they were in power, they just were not clever enough to think of it.

No comments:

Post a Comment