Wednesday, April 15, 2009

Before the Budget...

There is now a week to go until the Budget is announced and, as always around this time, we are starting to see an increase in ‘advice’ being offered to the Chancellor.

The two most interesting publications, in my opinion, are the recent releases by the Institute for Fiscal Studies which updates January’s Green Budget predictions, and by the Sustainable Development Corporation, who are hawking their ‘Green New Deal’.

The IFS publication is short and to the point. The UK is not in a healthy financial position. Labour wrote some golden rules about the public finances when they first took over the public purse. Back in November they ripped them up and started again.

In the PBR they made £37bn of cuts to public spending between now and 2013, compared to that which had been earmarked for spending in the March 2008 Budget.

At the same time, they wrote some new financial rules.

The IFS estimate that, taking into consideration the greater than expected drop in revenue, the UK government will need to a further £39bn of fiscal tightening by 2015-16 in order to reach their new targets.

The Conservatives will say that this is a result of the fiscal stimulus package announced back in November.

They’re wrong, of course. The IFS say that the change in the UK’s PSBR debt is largely due to a massive hole in the UK economy, leaving IFS director, Robert Chote, to question whether a fiscal stimulus is a necessity to haul the UK out of recession or unaffordable because of the current debt.

That, of course, is a question of politics, not economics.

I don’t think there’s any doubt which side of the argument you find the Sustainable Development Corporation.

They recommend a £30bn a year for three years green new deal for a fiscal stimulus package that would include:
* upgrading existing housing stock
* scaling up renewable energy supply
* redesigning the national grid
* promoting sustainable mobility
* low-carbon investments in the public sector
* skills for a low-carbon, sustainable economy.

The SDC estimate that this would create in the region of 800,000 jobs and that around 50% of the investments would generate significant financial returns within a couple of years.

Their argument is that the current UK ‘green stimulus’ is marginal at only 0.1% of GDP, as opposed to, say, the 3% of South Korea’s GDP that is being invested into stimulating growth, and, as a result, any advantages gained from the green stimulus would be quickly swamped by further ‘high-carbon’ development as the ‘normal’ market re-asserts itself.

SDC claim that the triple crunch of financial crisis, recession and climate change is an opportunity to be grasped, with the possibility for positive results for those who take advantage of the current climate to make a real difference.

There will undoubtedly be much more ‘advice’ offered to the Chancellor over the next week – and Plaid will be offering our own solutions to the current situation from a distinctive Welsh position. The question is which way will he jump – an austerity package with swingeing cuts to public services or a bonanza in an effort to turn the economy around?

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