My fantasy chancellor would announce a new path for fiscal policy

Autumn Statement wishlist.

Thinking ahead to the Autumn Statement, you can imagine a Balls/Cable alternative reality where the chancellor is a social democrat and Keynesian. Or you can consider what gentle nudging of the tiller the present incumbent might plausibly countenance.

The first option is a lot less gloomy. With the economy and the public finances now totally at sea, my fantasy chancellor will announce a new path for fiscal policy. There would be a short-term stimulus, starting with a cut to employers’ national insurance and a massive public investment programme. Capital spending which guarantees a future revenue stream, such as house-building, would be ignored when it comes to plans for the national debt, meaning the government could promise a million new homes over five years.

There would still need to be very painful fiscal consolidation over the medium-term, but not on George Osborne’s terms. His plans assume that almost all the burden should be borne by spending cuts not tax rises, and his fiscal rules force him to squeeze the deficit faster and deeper than is likely to be needed for long-term sustainability. The result is a plan to permanently shrink the size of the state as a share of GDP.

A centre-left government would declare that its aim was to return public spending to its long-term trend not to ‘overshoot’. That would mean taking a bit longer to cut the deficit and raising more taxes, especially from wealth and land. There would still be very difficult and controversial decisions because even a decade of flat spending would mean many individual cuts. A Fabian Society commission has just launched to consider how the tricky trade-offs could be made.

But what of the real Mr Osborne? His reputation depends on him rejecting almost everything I have said. He knows however the Liberal Democrats will demand he finds more ways to tax high-earners, even if it is simply by adding a few bands to the council tax. He could also accelerate the capitalisation of his two putative public investment banks. On specific spending cuts, he should desist from a fresh assault on his ‘undeserving’ shirkers, for although the focus groups tell him it’s good politics, over time he reinforces the ‘nasty party’ image the Tories must shed to win centre-ground votes. Perhaps, on cuts, Osborne should simply pause and take stock; after all, does he really need to set a budget for April 2015 this week?