There is a report
today that the Chancellor is pressurizing the Office of Budget Responsibility
to use planned but not yet implemented planning reforms to change its estimate
of the rate of UK growth. If they agree, then she will be able to spend more
money without breaking her own arbitrary fiscal rules. It doesn’t mean that
there will actually be any more money, of course; merely a forecast of extra
government revenue at some future date. If they agree to roll over and do as
she asks, she will then spend that extra non-existent money on investment in
the UK economy. Planning and implementing the spending will, as it always does,
precede the actual receipt of the money (always assuming that it is eventually
received), and in the short term, that spend will be presented in the accounts
as though the money has been ‘borrowed’, even if it’s actually simply been
created out of thin air by the Bank of England.
There’s nothing new
or unusual about that as a process, it’s what always happens, no matter how
much the politicians attempt to deny it. Government spending always precedes
government revenue. But here’s the twist: spending the extra money will expand
the economy (i.e. create economic growth), thereby validating, to a greater or
lesser extent, the original assumption about higher growth. The cause of that
growth may not be the one stated when it was first built into the assumptions. But
in terms of the outcome, that’s unimportant. Government spending creates
economic growth, which eventually leads to increased government revenue.
She could, of
course, achieve the same thing by simply adjusting the arbitrary fiscal rules
to which she is working. She is, however, too confused about the order of chickens
and eggs, and too deeply imbued with Treasury and Bank of England orthodoxy.
Maybe it doesn’t matter too much (unless the OBR refuse to play ball), because
as long as she abandons her obsession with insisting that the income must
precede the expenditure, she does actually stand a chance of achieving the
magical growth on which everything, apparently, depends. Whether it’s the right
type of growth, in the right places, is a question for another day…
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