Scotonomics: Here's what media WON'T say about Jeremy Hunt's UK Budget

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IT is budget day in the UK tomorrow, and most of the mainstream commentary will be around something called “fiscal headroom”, or as economist Stephanie Kelton refers to it, “Learned Helplessness”.

The debate playing out across our media over the past few weeks has been the binary choice faced by the UK Chancellor. Can he increase spending or cut taxes in this budget? The narrative is that there is something definite about this being his only option. It is, in fact, far from it.

The overall level of economic commentary in the mainstream hones in on this idea that a finite amount of money is available to the UK Government, and as such, the government has to do one thing or the other with this finite amount of money.

All of these decisions are kept on track or within set limits by the Fiscal Framework, a system designed to ensure that the Government doesn’t “spend or borrow too much money”. Within that framework, we are told, there is some “headroom” for the Chancellor. The media questions none of this. It is discussed as if there is no other alternative.

READ MORE: George Kerevan: Jeremy Hunt is ferreting down back of sofa

Well, there is, in fact. To acknowledge the concept of “fiscal headroom” is to play by a set of rules decided by politicians and economists who are very comfortable with spiralling inequality, climate catastrophe and huge poverty levels. It is a concept that is totally rejected by a wide body of economists.

THE UK’S ‘LEARNED HELPLESSNESS’

Within the fiscal framework in the UK, there is a fiscal target. Here is the outline from the UK Government: “If the Government wants to spend more than it raises from taxes and other sources of income, it borrows. The borrowing target is for government borrowing to not exceed 3% of GDP by the fifth year of the forecast period.”

Most countries have some kind of similar framework, not because it is the best thing for an economy, but rather because they are all advised by economists with the same view. Governments have a herd mentality and settle around this 3% figure. As outlined above, it means that the Government cannot borrow more than 3% of the annual increase in the size of the UK economy, so that’s a figure of around £70 billion.

A small but very important aside. This £70bn is called “borrowing”, but it is simply an amount exchanged from one form of money into another form of money. Specifically, money, in the form of reserve balances at the Bank of England, is exchanged for another form of money, government bonds. The money is borrowed in the loosest possible definition of the word.

READ MORE: What time is the Spring Budget and how can I watch?

Back to that 3%. There is nothing scientific about this figure. You could not find one mainstream economist who could tell you why this was better than a 2% or 5% figure. It is a figure plucked out of the air within a framework that thinks that government spending “crowds out” spending from the private sector. It is not scientific. The story goes that when the EU set this figure as part of the Stability and Growth Pact, 1% felt too low, and 5% felt too high. 3% was also France’s level of deficit to GDP at the time. So 3% was the choice. It fitted a defined narrative. And this is the figure that dictates our economic path. Madness, isn’t it?

On Budget day, we should question the need for this figure and this framework, not whether the Chancellor should tax x% or spend x%.

One thing worth adding around the UK fiscal rules is something vile. The UK framework includes something very rare indeed. The UK has a cap on welfare spending. There is no other cap on any other part of government spending. “The welfare cap says that spending on certain items of welfare should be within a predetermined cap and margin set by the Treasury.” This is particularly sickening. There is no economic argument for this. It is purely a political one.

FISCAL HEADROOM FIGURES

So, here we are. Commentators and think tanks spend their time working out how much the Chancellor can “give away” in tax cuts or spend on public services without breaking his own rules. The fiscal headroom is £15bn to £23bn, depending on how the figures are calculated. All, and I mean ALL of the commentary tomorrow, will be on what % of this amount goes on tax cuts and what goes on public spending. We will see a merry dance around this arbitrary and unscientific figure. I suggest another narrative.

We acknowledge that the UK Government is not fiscally constrained, and that right now there are enormous amounts of resources that could be brought online to solve our huge and growing list of problems.

READ MORE: Warning as UK spends fraction of European neighbours on green energy

And then we ask, how will this Budget reduce inequity and poverty? How will it improve our education and our health service? How will it protect us against environmental harm and the unfolding climate crisis? In what ways will it secure our food and energy sovereignty?

This is how we should measure and judge a budget, not whether or not it exceeds some ill-defined and completely arbitrary figure.

By following the mainstream diagnosis and understanding of our economy, we often end up discussing things that have no meaningful or practical impact on our lives. I would argue that is the point of it!

We have learned to see our position as helpless. The framing of this Budget is just another way that the establishment keeps its wealth.

Scotland’s largest Festival of Economics takes place on March 22 to 24 and will discuss the narrative I outline above. Programme and tickets are available from www.scotonomics.scot