Friday, December 08, 2006
IFS On Gordo
I sometimes think the Institute for Fiscal Studies may be staffed by communists, but park that- their excellent analysis is always worth reading.
Yesterday they published their analysis of Gordo's Pre Budget Report, pointing out for example that public spending in the first seven months of this year is running way too fast to hit the Treasury's full year forecast. Which implies either an overshoot, or another massive crunch like the NHS financial deficit crisis at the end of last year (remembering of course that the Commissar has promised to resign if she doesn't get that under control this year).
They also highlight the significance of immigration for the fiscal projections. Because by assuming continuing high levels of immigration, Gordo is able to lift his assumed long-term trend economic growth rate by 0.25% pa to 2.75%pa. That may not sound much, but by 2010-11 it's increasing tax revenue by £6bn pa.
That's especially important just now, because even Gordo has to recognise the continuing dramatic slide in Britain's productivity growth- largely caused of course by his own disastrous policies (see previous blogs). So without the boost to our labour supply from all those migrants, he'd be having to reduce his trend growth rate... and his revenue forecasts. No wonder the government is so reluctant to impose proper immigration controls.
But of course, in the real world, the migrants also impose costs, including public expenditure costs - schools, healthcare, housing, and the knock-on impact in terms of taking jobs from Britain's existing large pool of unskilled workers and putting them on the dole (see previous blogs, including this post from Slough). You can bet Gordo's forecasts take no account of those costs.
IFS Director Robert Chote also picked up on Gordo's fiddling the economic cyle so he can keep to that now meaningless Golden Rule:
"In Mr Brown's hands the cycle has lengthened and shortened like a yo-yo. This is an impressive party trick but we think it would be better if it was overseen by an independent body if observers are not to suspect that the changes are motivated more by convenience than economic judgment."
Absolutely right Bob.
(For any non-economists reading this, all you need to know is that economic cycles- which form the basis of Gordo's Golden Rule- are an entirely theological concept; you can't see them or measure them directly from simple observable economic data: you have to divine their presence through complex econometric modelling... need we say more?)
On Brown's announcement of new spending of £36bn on education, the IFS said it was "misleading" since most of the money had already been announced:
"Very little of this is new money. Of the £200 per pupil he announced he is sending to schools in three months' time, only £20 is new."
While spending on schools has risen by 16.3% a year in real terms since 1997, it will rise only 4.9% a year over the next five years.
Won't it be great to have such a slimewart ruling over us. One reptile replaced by another.
Posted by Mike D at 7:30 am