Why you shouldn't fall for Budget backlash from small-c conservative 'soothsayers'

The reputation of economics as “the dismal science” has been enhanced in recent days with the usual pundits and prognosticators queuing to spray negativity over Rachel Reeves’ Budget, abetted by a virulent Tory press which hasn’t had a Labour government to kick for 14 years and is making up for lost time.

Most of the economic stuff we are fed is not “science” at all. Rather, it is comment and prediction conditioned by small “c” conservatism and hedged with so many ifs and buts that it should be placed in the category of soothsaying. These guys would be out of business if there was ever a requirement to look on the bright side of life.

If the grandly named Institute for Fiscal Studies had been around in 1948, it would have been warning darkly about the fiscal implications of creating a National Health Service. It has repeatedly been criticised by other economists for its narrow fiscal focus and the biases this creates in its analysis.

Strange logic of a glib phrase

Yet its current director, Paul Johnson, is never far from a television studio when the opportunity arises, as the go-to doomster. This week, his soundbite was that Ms Reeves was playing “silly games” by raising public spending over the next two years but would be unable to maintain it beyond that.

A moment’s thought confirms why that is inherently unlikely. Governments looking for a second term do not normally plan to create bad news for themselves in the period leading up to the next election, which is the logic of Mr Johnson’s glib phrase. It would be a strange “game” for Ms Reeves to play.

The alternative possibility, which seems much more plausible, is that she and her colleagues believe the measures taken will generate sufficient economic dynamism over the next couple of years to carry forward a process of change and improvement in people’s lives. It is the job of government to make that happen. Unlike economic pundits, they will be judged by outcomes.

Chancellor Rachel Reeves had to deal with the dire legacy inherited from the Conservatives while also making the kind of changes for which Labour governments are elected (Picture: Dan Kitwood) | Getty Images

Cautious and risk-averse

Much of the punditry, supported by endless charts, envisages the state of affairs in 2029. For many lesser mortals, that is a long way off. The positives of massive investment in public services and infrastructure over the next couple of years are considerably more relevant. They offer the prospect of tangible change – then let’s see where that leads. Optimism is not an offence.

The Office for Budget Responsibility has produced its own weighty budget response, full of upsides and downsides, but ripe for selective quotation. However, a relevant truth is hinted at in one concession: “The economic outlook depends on uncertain judgments on the paths for productivity, inactivity, and net migration.”

In other words, things change in response to real-life factors and that is where the role of politicians comes in. It is the job of the OBR to analyse and sound warnings. By its nature, it is bound by caution and aversion to risk. If its projections were accepted as the route map to good governance, there would be no need for elections. Just leave it to the OBR!

Immediate benefits for low-paid

Nobody doubts that Ms Reeves’ Budget involves uncertainties. But then, so too would the status quo or any variation thereof! Few of us are sheltered from the fact that public services have declined at an alarming rate while there are huge needs for investment in public infrastructure, not least in the energy sector. These are priorities for now, not 2029.

Ms Reeves faced the challenge not only of dealing with the dire legacy she inherited but also signalling the kind of changes for which Labour governments are elected. Millions of low-paid people will feel immediate benefits from her announcements even if this is only a first instalment of what is required.

The challenge of making serious inroads into poverty is daunting. Indeed, the Joseph Rowntree Foundation used the OBR’s projections to claim that the poor, with the exception of pensioners, will still be worse off by 2029. That is why these forecasts must be treated as hopelessly unambitious, as some economists agree. This is not a “game”. It will be the determinant of how this Labour government is judged.

The Rowntree Foundation welcomed the Chancellor’s investment in social homes, help for carers, the rise in the minimum wage and the cap on how much can be deducted from Universal Credit in repayments. In better circumstances, these would add up to a decent clutch of measures. Yet clearly they are only a down-payment on what is required to address the depth and breadth of the challenge Labour has again inherited.

Poverty seen as a given

In all the commentary around the Budget, and the denigration of what Ms Reeves is attempting, its progressive features rate scarcely a mention. The headline-grabbing economists take poverty as a given but that is a state of mind which no Labour Chancellor can countenance, far less incorporate into their projections. Economists can advise but it is politicians who must deliver.

In contrast to the lack of interest in help for the low-paid, we have heard a great deal about farmers who feel “threatened” with paying less inheritance tax than anyone else, but only if they have land valued at more than £1 million, as if this was going to drive rural Britain into penury. Three quarters of farms won’t be affected at all while the measure might discourage the dodge of buying farmland to avoid inheritance tax.

It is an example of how a well-heeled lobby group can make a great deal of noise while the infinitely greater needs of large parts of society go virtually unrepresented in the commentariat. The Institute for Fiscal Studies et al are, I suspect, rather more likely to empathise with the former category than the latter – which helps explain why economic punditry deserves its dismal reputation.