Although sometimes implied in public debates, deficit reduction and growth are not alternatives. Both are essential for Britain’s prosperity and economic stability. On either count, George Osborne is failing.
In 2010, George Osborne inherited an economy that was growing at 0.7 per cent. Later that year he ignored the advice of many economists and set out plans to close the deficit within four years rather than eight. He also failed to set out a coherent growth plan, predicated on investment and jobs in the green economy that his party once championed.
The result, plain for all to see, has been a double dip recession. The economy has contracted in each of the last three quarters and has eliminated all of the limited increases in GDP made in the first year of Osborne’s tenure.
While extreme weather events and national occasions like the Olympics or Royal Weddings can explain dips in single quarters, it is Osborne’s dogmatic approach to spending cuts that has sapped confidence from businesses and consumers as well as directly taking demand out of the economy. Last week, in a ground-breaking new study, the IMF admitted that they had underestimated the impact that cuts have on growth during periods when the economy is under siege by a factor of two or three.
The result of Osborne’s slasher-nomics has been borrowing that is rising rather than falling. In this year’s budget, the Chancellor was forced to admit that public sector net borrowing (PSNB) would be 8.3 per cent in 2011-12 rather than 7.9 per cent as he’d predicted a year before. Since then, the situation has deteriorated. The most recent ONS release showed that the PSNB is up nearly 22 per cent in the first five months of the financial year compared to the same period last year. That’s worth saying again. Borrowing is going up even as the departmental spending cuts continue apace.
Given the fiscal straightjacket in which Osborne willingly bound himself, it would take great political skill to perform a fiscal u-turn. Unfortunately he’s not even interested in a g-turn. According to the CBI, the green economy contributed one third of Britain’s sluggish growth in 2011. Since 2004, the clean energy sector has grown worldwide by 600 per cent with the UK well placed to benefit from the increased demand.
Yet Osborne has attempted to slash support for the renewable sector and is implacably opposed to the low carbon targets that energy firms and investors are demanding. Little wonder that two groups of businesses have written to the government to set out their concerns on the direction of travel. Most worryingly, international firms including Siemens, Mitsubishi, Areva, and Vestas have said that current policy risks “damaging consequences for the scale of future investments in the UK energy sector.”
Criticisms that the Chancellor is a part-timer do not ring true. Closer to the mark is that he is a laissez faire ideologue whose world view is crumbling. For this reason alone, Britain needs a Plan B.
Will Straw is the founder of Left Foot Forward. Alistair Darling will be debating Norman Lamont this Monday to as whether we need a Plan B. You can find out more information on the Spectator Debate here.