The world is full of omens. History is littered with the damned things. Tragedy doesn’t get out of bed in the morning for anything less. (My personal all-time favourite tragic exhortation was the one handed out to Croesus. Whammy.)
So on to budget day, and time to reflect upon another of history’s unheeded warnings. Step forward Ernst & Young. Over four and a half years ago, they questioned not the politics or even the efficacy of the Golden Rule, but the numbers themselves.
E&Y’s ITEM Club is kindofa big deal. It knows things.
The ITEM Club is unique in that it uses the same economic model for its UK forecasts as the UK Government’s Treasury uses for its policy analysis and Budget forecasts (ITEM stands for ‘Independent Treasury Economic Model’). This means that ITEM is in an unrivalled position to test whether Government claims are consistent and whether its forecasts are credible.
Like most advanced economies, the UK will experience a sharp recession in 2009, with GDP falling by -3½ per cent in 2009.
But then ITEM predicts modest recovery beginning next spring. Again, so does the budget. ITEM goes on: ‘Nevertheless this leaves the 2010 GDP growth figure negative, at minus 0.1%.’
Erm, the budget states: ‘…before substantial macroeconomic stimulus drives recovery, with growth of 1¼ per cent forecast in 2010.’
Both use the same data and modelling, and yet there is significant divergence in essential baseline figures. How on earth did he come up strong positive growth?
The IMF also diverges significantly from Darling’s optimistic figures. Remember the IMF? Yip, they’re the guys GB wants installed as the early warning system for the global economy. The ITEM early warning system wasn’t heeded in the past. Why will it or the IMF be heeded now?
Labour is not synthesizing economic data and then basing economic decisions upon it. As we can see, the early warning systems have been in place for some time – when it’s inconvenient to the dogma, dogma prevails.
Four and a half years ago, E&Y ITEM Club warned that Labour was far too optimistic. And see where we are. Now, once again, optimistic Labour are way ahead of people who are using the same modelling. This budget is just plain dishonest.