Time for a jubilee budget?

We'll need time to say whether our chancellor did the right thing yesterday. Debt relief, according to the biblical principle of jubilee, might have been a good place to start.

When is a budget a good budget? That is a difficult question to answer. A good Budget is perhaps one that is economically sound and has an ethical basis of some sort. The problem is that many budgets in the past which seemed good at the time turned out to be detrimental to the economy. In the same way, history regards some unpopular Budgets as containing measures which promoted the long-term health of the economy. Yesterday's budget statement given by the chancellor, Alistair Darling, will be remembered for some time. That is just as well because it may take a while to assess it properly. Good or not, there is little cause for celebration.

The backdrop is grim. Confidence dropped sharply throughout the world economy last autumn and the banking system came close to collapse. Businesses and households found that their access to credit was much reduced. The result was a severe drop in output across the world economy continued into 2009. Some forecasters are still revising their economic growth estimates downwards. The IMF forecasts the global economy to shrink by 1.3% this year, making this recession genuinely worldwide. Advanced economies are forecast to see GDP contract by 3.8% on average. UK GDP is expected to fall 4.1% which is significant but less than Germany (-5.6%) and Japan (-6.2%). Forecasts can have their own momentum of course, and often fail to predict turnarounds. The Treasury believes UK GDP will fall 3.5% but rise in 2010, putting it at the top end of estimates for next year.

The sharp slowdown is hitting tax revenues and is one reason why net borrowing in the UK is expected to peak at £175bn, larger even than the borrowing forecast in the pre-budget report (PBR) last year (£118bn). The recession has prompted the chancellor to produce a fiscal stimulus, with measures in the PBR and the latest budget. Yet the condition of the public finances means that taxes have to rise and spending growth has to slow sharply in later years. The room for manoeuvre in this budget was limited. We may prefer not to have started from here (though Germany, a less indebted economy, also faces serious problems), yet decisions had to be made.

Some would argue that a "good" budget in such circumstances is one that cuts spending dramatically and even raises taxes to balance the books. Surely, when people and businesses are paying down debt, the government should do likewise? Yet if we want debt levels in the business and household sectors to fall then government debt has to rise. If government was to take money out of the economy at this stage, businesses and families would be worse off. That is the simple equation but there is an economic case: when confidence is so low, government should step in. The alternative is a 1930s-style Great Depression.

The slowdown is throwing millions of people out of work around the world. Latest figures show unemployment in the UK running at 2.1 million. While the increase in unemployment in this recession is below the levels of the 1980s, the rise has been sharp and most forecasters expect over 3 million unemployed by the beginning of 2010. Unemployment is an awful thing to happen to people, their families, and communities. Aside from the loss of income there are other effects, such as poorer health, which Bank of England MPC member David Blanchflower has highlighted (pdf). The Church has long been concerned about joblessness. So a "good" budget will be one which tackles unemployment and poverty. Alistair Darling's statement does take some further steps in this direction, by guaranteeing a job or training place for those under 25 who are out of work over a year. He also announced more funds to help the Department for Work and Pensions give assistance to the unemployed and he made changes to the working tax credit to give support to those working fewer hours.

Could the Christian and Jewish principle of jubilee found in the Bible ever become evident in a budget speech? That would certainly be radical and perhaps a good thing. The Christian Socialist Movement is one organisation discussing how the jubilee principle could apply today. The jubilee laws were not anti-market. They assumed everyone had an equal stake in society (being equally valued) but that in practice economic relationships changed. Once every generation, and to a lesser extent every seven years, the economy was recalibrated and debts were cancelled. This principle of debt cancellation has been applied today to developing countries via successful campaigning. A "jubilee budget" might address how debt levels throughout the economy can be managed in future and how economic power can be better shared.

This article previously appeared on the Guardian's Comment is Free web site.
Stephen Beer, Thursday 23 April 2009

Guardian Comment is Free, 23rd April 2009, 23/04/2009


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