around 6% of GDP; using the March 2012 OBR forecast deficit of 8.3% (OBR 20121: 5), this would leave the structural component at 2.3%, compared to the OBR forecast of 6.4%.

Finally, it seems likely that the subjective component in the estimation procedure, namely business survey responses, will be pro-cyclical in character. Martin suggests that normal capacity utilisation may be understood by businesses in different ways: ‘Normal capacity output may be regarded as a level of output that satisfies businesses’ aims, for example, to maximise short-run revenues and profits, or to minimise short-run costs, rather than a level of output that is technologically feasible with existing resources. Such a distinction is frequently drawn in economic studies of firms’ capacity’ (Martin 2011: 46). In the context of persistent stagnation of demand, business pessimism may generate an adjustment of estimates of potential output towards the reduced levels of output actually achieved; this is reminiscent of Lamfalussy’s analysis of the business investment psychology that prevails in conditions of economic stagnation (Lamfalussy 1961).

In the autumn of 2011, the criticisms of the exaggerated official estimates of the UK’s structural deficit appeared to be gaining ground, with two notable articles in the Financial Times (Giles 2011, Wolf 2011). It goes without saying that if the UK Chancellor sticks to the OBR approach, we are condemned to further and deeper deficit cuts, which will ensure further downward pressure on household incomes from falling real wages and cuts in state benefits, and continued stagnation in GDP. Yet it is precisely the same fiscal recipe, underpinned by similar official statistical calculations, that will be deployed if the EC’s Fiscal Pact is implemented. The time has come to recognise the current fiscal strategy for what it really is: a deliberate effort to cut the real incomes of the great majority of Europeans - including in the thus-far protected Eurozone countries like Germany, Netherlands and Finland - and to cut back irreversibly the state's share of GDP. Neoliberalism thereby would emerge from the crisis in a still more extreme form than it took in the years up to 2008.

## 3. The structural deficit and the politics of depoliticisation

Politically, the deployment of the structural deficit in the Fiscal Pact continues along the lines established almost from the outset of the ascendancy of neoliberalism, enshrined globally in the Washington Consensus, and regionally in the 1992 Maastricht Treaty and the establishment of the ECB. The overall purpose is to remove the threat perceived by ruling élites of a return to the active national macroeconomic management that is said to have prevailed in the postwar Keynesian-welfare-state era. In particular, changes in institutions and practices since the mid-late 1970s sought to prevent any further democratic challenge to private wealth and power. Alongside the worldwide assaults on income and wealth taxes, trade union rights and public ownership, neoliberal régimes sought to insulate key policy processes from democratic control. A widespread shift in decision powers from spending departments to ministries of finance was followed up by the adoption of fiscal targeting and by giving central banks ‘independence’ from parliamentary control. Renewed belief in the natural efficiency of markets became the cornerstone of the supporting economic ideology, which in addition restructured industrial and labour policies around the pursuit of national competitiveness, and supported international freedom of movement for goods and capital, but not labour.

In an influential and much-cited paper, Rhodes (1994) argued that UK public sector reforms in the 1980s and 1990s amounted to a ‘hollowing out’ of the state, consisting of four trends: