Osborne wants it both ways on cuts and GDP

George Osborne tonight attempts to second guess how his opponents will attack him. But his musings reveal far more about the inconsistencies in his own approach than even the sharpist reposte from the new shadow chancellor c0uld manage.

George Osborne tonight attempts to second guess how his opponents will attack him over today’s GDP figures. But his musings reveal far more about the inconsistencies in his own approach than even the sharpist reposte from the new shadow chancellor could manage.

In the Evening Standard, George Osborne writes:

“Deficit deniers or the vested interests who oppose cuts to any item of public spending will probably claim that the Spending Review or the VAT increase are to blame for today’s growth data. But there’s a big problem with that argument – the data refer to the last quarter of 2010 when neither had yet begun.“

While it’s certainly the case that the VAT cut only came into force in early January, the coalition were crowing about making £6.2 billion of cuts in 2010-11 – including to the Child Trust Fund and the school rebuilding programme – only a few months ago. Indeed, in December the Chancellor himself told CNBC:

“We’ve already begun the reductions in public expenditure, and it has not had the impact on demand, not had the impact on economic growth that the critics said it would. So there are plenty of people who said that what we were doing was wrong, but, at the moment, they’re being confounded by the figures.”

So how was Spectator editor, Fraser Nelson, able to claim today that “state spending was up by a staggering 5.2 percent in December year-on-year, and 5.2 percent Q4 2009 vs Q4 2010”. The answer is that state spending can rise even while cuts begin to bite. The rise in spending will partly be due to the costs of recession including increased debt payments as gilt yields rise and larger welfare payments as a result of higher unemployment.  Increases in state spending is entirely consistent with cuts in departmental expenditure limits which in turn have an impact on GDP. The ONS’ statistical bulletin on GDP this morning said:

“Government and other services decreased 0.2 per cent, compared with an increase of 0.6 per cent in the previous quarter.”

Despite all this, Ed Balls has not marched to George Osborne’s tune and instead explained that the lack-lustre growth figures were for the period “before the VAT rise and sharp public spending cuts have even begun”. Note the use of the word “sharp” – the Budget projected £20 billion of additional cuts each year from now until the next election. Instead, Mr Balls walked lock step with outgoing CBI boss Sir Richard Lambert by focusing his criticism on the Government’s lack of a strategy for growth.

George Osborne can’t have it both ways on cuts. He boasted about early action to tackle the deficit despite howls of protest from the economics profession and is now paying the price.

24 Responses to “Osborne wants it both ways on cuts and GDP”

  1. John Edginton

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/htq7l9

  2. Broken OfBritain

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/htq7l9

  3. Faircutsplease

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/htq7l9

  4. Plymouth City UNISON

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/htq7l9

  5. False Economy

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/htq7l9 #osborneexcuses

  6. barb milne

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/htq7l9

  7. SEAN

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/gDEYRt

  8. Spir.Sotiropoulou

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/gDEYRt

  9. Hitchin England

    RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/htq7l9

  10. william

    Which government gave the UK the DEFICIT?Get a proper job in the first place before you lecture people about how your father ruined the economy with that nice Mr. Brown.

  11. Mr. Sensible

    I think these numbers show us again the gamble that is being taken with our recovery.

  12. Stephen W

    Your suggestion is quite frankly bogus. The idea that 0.4% of GDP of cuts made in May would suddenly cause growth to slump in December is just silly.

    And suggesting Balls and Lamber walk in “lock-step” is equally silly. Lambert supported the government’s program of cuts. I didn’t realise Balls had utterly changed his previous line opposing them.

  13. Chris

    Looks like all that talk of Britain being bankrupt and massive cuts being the only option is coming back to bite Osborne in the ass.

  14. Anon E Mouse

    Will – The Child Trust Fund was almost as stupid as PFI but cheaper.

    It’s bad enough paying for some schools for the next few decades – especially at such exorbitant rates but to give money that has to be borrowed by the government to babies – the least productive members of society – is frankly stupid and like HIP’s should never have been brought in. When Labour won in 1997 they should have immediately scrapped PFI.

    On schools for the future the current debts Labour has left us with mean we are paying the inequivalent of a primary school an hour in interest alone.

    The sooner Balls and Miliband admit the deficit the better – this denial just makes people see Labour really has learned nothing…

  15. Anon E Mouse

    equivalent I meant…

  16. Will Straw

    Some responses:

    william – there’s no evidence that Labour was responsible for the deficit. As has been well documented it was due primarily to the financial crash: //www.ippr.org.uk/publicationsandreports/publication.asp?id=799 And leave the personal insults on other blogs please, we don’t do that here: //www.leftfootforward.org/about/

    Stephen – You’ve missed the point. The article looks at the contradictions in Osborne’s claims about the timing of cuts. We know from the ONS release that the main contribution was a 3.3% fall in construction but output from ‘Government and other services’ also fell so that will have played a role. Balls was in lock step yesterday with Lambert on his criticism of the lack of a growth strategy.

    Anon – The CTF was a landmark policy that even sensible Tories like Philip Blond support. I’m sorry you cant see what an important transformation in the lives and aspirations of young people it would have provided. I agree on PFI – it was beset with problems. As you know, the increases in interest are due to the impact of the financial crash. As I pointed out to william (see the ippr doc I linked to above), Labour spending, which the Tories supported until after the collapse of Lehman’s, made very little difference to the increase in net debt.

  17. Clem the Gem

    For George the Worst (or Gideon, if you prefer), there is an upside. Since the rest of us have got poorer, he and his millionaire chums in the Cabinet have got comparatively richer – especially since he hasn’t paid £1.6 million woth of taxes…

  18. BourgJoe

    Bravo Will! The biggest challenge we face is the persistent deceit that Brown’s public sector spending was responsible for the entirety of the public debt, which has to be reduced immediately, and that consequently the Conservatives have no choice but to slash that state.

    Unfortunately for many this is now an article of faith which becomes difficult to challenge due to the need for complex economic explanation and arguments (which tend to be ignored regardless.)

  19. Anon E Mouse

    Will – It is not the responsibility of the state to provide money to babies – especially when it has to be borrowed because all the money has gone. To borrow money and pay interest on it to give it to non productive members of society is just bonkers to people. Why not do like the US and give money to stimulate the economy or to small businesses. That’s a better use of money.

    If your argument is that by the time they are 16 it will prevent them from signing on or to pay for college then maybe but to just give money to people which can only be put into a bank and increase bankers profits is nuts.

    That is the problem with Gordon Brown’s Labour model. It is simply unaffordable. It has been proven to be. Elsewhere on this fine blog people were raging about breakfast clubs being banned yet when I asked why parents can’t feed their own children I was condemned.

    Labour need to get a grip and realise they lost the election by advocating the very policies they still try to champion.

    My suggestion to you Will is to start a new party called New New Labour and vary what has gone before. The only time Labour were successful was under Tony Blair and it felt (initially) like a right wing version of Labour and that resonated with the public.

    The current path Labour seem intent on following, one based on deceit and denial is ultimately doomed. If there was an election tomorrow the party would go bust – all the Labour money’s gone.

    Start that party Will Straw – I’ll be onboard as a strategic advisor because whoever is advising Labour at the moment is clueless…

  20. Anon E Mouse

    Bourgjoe – What about borrowing money at the height of the boom?

  21. Mark Stevo

    I rather suspect the Q1 print will surprise on the upside. If there is a meaningful weather component in the Q4 number (and let’s recall how inaccurate the first estimate is, eg Brown’s Q4 ’09) then there’s a decent chance that the delay on construction projects give a kick in Q1. Let’s see…

  22. Mark Stevo

    Speaking of which, will commentators be prepared to give their forecast (even something as binary as +ve vs -ve)?

  23. Juan Voet

    RT @FalseEcon: RT @leftfootfwd: Osborne wants it both ways on cuts and GDP //bit.ly/htq7l9 #osborneexcuses

  24. George Eaton

    Must-read blog by @wdjstraw on why Osborne can't have it both ways on cuts //bit.ly/i3UGv3

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