Chancellor admits independence affordable

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Amongst the political responses to yesterday’s budget announcements, the leader of the Tory group in the Senedd described it as being “exactly what the country needs”.  This would have been more credible if we didn’t all know that (a) he would have said exactly the same thing if the Chancellor had stood up and doubled down on austerity, and (b) he would have been apoplectic with rage had the same budget been announced by a Labour Chancellor.  He’s not really expressing an opinion on the content of the budget at all – merely reaffirming his desire that it should always be delivered by a Tory.

Labour were inevitably wrong-footed to a degree – a massive increase in spending is exactly what they have been arguing for, and that is what we are going to get (although there is always scope to argue about the detail – and I suspect, given the Chancellor’s assertion that it meets his own unnecessary and irrelevant fiscal rules, that there is a sting in the tail to come, perhaps in the ‘proper’ budget in the autumn, or even in the ‘emergency’ budget which is likely to be presented in a few months’ time).  Corbyn’s claim that the budget is an admission that austerity has failed is fair comment, but it doesn’t go nearly far enough.  It’s much more than that – it’s also an admission that austerity was also both unnecessary and inappropriate as a policy choice.  I suppose, though, that it would be difficult for Labour to make that point, given that, at the time austerity was introduced in 2010, Labour’s own policy was also for austerity, just a little less and a little slower.

We should also note that a budget which deliberately increases the budget deficit year on year, and which abandons any pretence that the UK needs to have a plan to return to a balanced budget at some foreseeable future date, blows a massive hole in the main, repeated, argument of unionists against Welsh independence.  If the UK can run a more-or-less permanent budget deficit, then so could an independent Wales.  An argument of principle (“You can’t run a permanent deficit”) becomes an argument of degree (“There is a limit to the size of the deficit you can sustain”), which is a much easier argument to have, not least because most independentistas would agree with it.  Of course there are limits; but the factors governing those limits are complex and there are no hard and fast rules.

Some reports yesterday suggested that bond markets were ‘unfazed’ by the planned increase in borrowing – and, indeed, that what surprised them most was that the figure for planned new debt is lower than they were expecting.  But why would they be fazed by this – new government debt is exactly what the markets need.  What is debt for the government is a safe haven for funds, even at effectively negative interest rates.  The funds being released by the stock market sell-off have to go somewhere and lending the money to the government is far and away the safest option.  Not only are they ‘unfazed’, they are delighted that the government is going to borrow more.  Indeed, Professor Richard Murphy argued a few days ago that, as the borrower of last resort, the government had a duty to issue more bonds (i.e. borrow money).  It all underlines what some have been saying for a long time – one person’s debt is another person’s asset.  Most of the debt which the government accrues on behalf of the population is owed to the same population (much of it through pension funds), and if the government repays ‘our’ debt, it is a case of us repaying ourselves.  (Yes, there is a question of distribution of assets and debt which needs to be addressed, but I’m just considering accounting principles here.)  If we can only get that understanding clear, the debate about how much ‘debt’ governments can ‘afford’ becomes a lot clearer.  If independence was ‘unaffordable’ on the basis of deficit budgets, then the UK would have to declare itself un unviable state on the same basis.  Neither is true.