Osborne’s optimism looking less and less plausible

Today’s dire GDP numbers show that the government’s reckless gamble with the economy risks plummeting the UK back in to recession, writes Rachel Reeves.

Rachel Reeves is the Member of Parliament for Leeds West

Today’s dire GDP numbers show that the government’s reckless gamble with the economy risks plummeting the UK back in to recession. The economy contracted by 0.5% in the fourth quarter of 2010, compared to growth of 1.1% in the second quarter and 0.7% in the third quarter.


The Chancellor reacted by saying:

“There is no question of changing the plan… on the back of one very cold month…we will not be blown off course by bad weather.”

While Clegg said that it was still:

“… early days of the economic recovery.”

The government’s claims that the numbers are just because of snow is a complacent response that doesn’t do justice to the risk being taken with jobs and growth. For months Labour have argued that the government need a Plan B, that cuts while the recovery is so weak are reckless and that the VAT increase will make matters worse. Today has shown the gamble is not paying off.

The reality is that it’s not all because of the snow. Today’s numbers reveal that even before the VAT increase and before the full extent of the cuts are felt the economy is shrinking again. All the efforts by the previous Labour government to help keep people in work, families in their homes and businesses in business are being undone by what Osborne and the coalition are doing.

The GDP numbers are not even the only data for concern. Last week, unemployment figures showed that 49,000 more people were claiming benefits in the three months to November compared with the three months before that. Mortgage lending is at a 20-year low and bank lending to small businesses fell in the past three months.

So much for cuts and tax hikes allowing the private sector to flourish – the reality is that public sector cuts, before the economy is out of the danger zone will prolong not accelerate the recovery.

And with inflation now at 3.7% on the consumer prices index and 4.8% on the retail prices index, Osborne’s optimism that the Bank of England can keep the show on the road is looking less and less plausible. The competing pressures the Monetary Policy Committee face – of managing relatively high and rising inflation, with stalling demand – is becoming more and more stark.

And it’s not just the MPC who face these competing concerns. On the one hand, families and businesses are worrying about rising prices, but on the other, as they brace themselves for a year of cuts, neither do they want a double whammy of rising interest rates, meaning higher mortgage payments and higher costs of lending.

There are other alarm bells too. Sir Richard Lambert, outgoing head of the CBI, said yesterday that:

“It is not enough just to slam on the spending brakes. Measures that cut spending but killed demand would actually make matters worse.”

He went on to criticise the government for failing to articulate a “vision of what the UK economy might become under its stewardship”.

Even the government’s own creation, the Office for Budget Responsibility, is sending out warnings – telling Osborne that 490,000 jobs will be lost in the public sector as a result of government cuts. PriceWaterhouseCoopers go further, showing that another 500,000 jobs will disappear in the private sector as a result of the government’s austerity programme.

And on the back of today’s figures, Yorkshire Bank have said:

“It is hard not to draw the conclusion that the underlying momentum in the UK economy is weaker.”

And that:

“A return to technical recession cannot be ruled out if the private sector momentum is slipping precariously.”

George Osborne and his Lib Dem cheerleaders are the only ones who seem to think the austerity strategy is working – with a Panglossian attitude that doesn’t match the reality.

Now more than ever there is a need for a genuine alternative to the deep cuts and tax hikes. Along with Ed Miliband, Ed Balls will excel in exposing the gaps in Osborne’s policies, and the risk he poses to families, pensioners and businesses, while setting out Labour’s alternative. People are increasingly crying out for a government on the side of families struggling to make ends meet and policies that help businesses access the finance they need to grow and create jobs.

If the government refuses to rethink and refuses to prioritise growth, trying to explain away rather than confront today’s numbers, Labour must put forward an alternative. An alternative where families and pensioners don’t end up paying the highest price for budget deficit reduction. And an alternative where we re-structure and re-balance the economy so it is less dependent on financial services.

Deficit reduction is not all there is to economic policy, despite what Osborne would have us believe. We need a re-invigorated economy – with jobs across the regions, a greener, fairer and better balanced economy and an economy where those who are working hard and doing the right thing are supported not left to fend for themselves as this government is increasingly doing.

As Ed Balls said this morning:

“It’s not too late – George Osborne and the Treasury must urgently rethink their reckless plan to cut the deficit too far and too fast and start putting growth and jobs first.”

Meanwhile today, Vince Cable cancelled a press conference, and his Growth Strategy promised in the autumn is still nowhere to be seen. And, Osborne has gone from blaming the previous government to blaming the snow, failing to take any responsibility for the worsening economic situation that is of his creation. Last summer Ed Balls called Osborne a “growth-denier” – today that accusation is shown to be increasingly true.

Over the next fortnight data for growth in the US and Europe will be published. If, as expected, their economies are continuing to grow we will have all the evidence we need to know that this reckless gamble with jobs and growth is not working.

If there is to be a spring thaw in the economic numbers, then we need government to quickly get to grips with the economic realities, not stubbornly refusing to recognise the risks that austerity poses even when the data is put before their eyes. It will be up to Ed Miliband and Ed Balls to hold them to account and to put forward an alternative for jobs and growth.

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28 Responses to “Osborne’s optimism looking less and less plausible”

  1. Tom Blenkinsop

    RT @leftfootfwd: Osborne's optimism looking less and less plausible: http://bit.ly/f3MBNk – @_RachelReeves_ responds to the GDP figures

  2. InBirmingham

    RT @leftfootfwd: Osborne's optimism looking less and less plausible: http://bit.ly/f3MBNk – @_RachelReeves_ responds to the GDP figures

  3. Nigel Cooke

    RT @leftfootfwd: Osborne's optimism looking less and less plausible: http://bit.ly/f3MBNk – @_RachelReeves_ responds to the GDP figures

  4. Rachel Reeves

    RT @leftfootfwd: Osborne's optimism looking less and less plausible http://bit.ly/gVJk3E

  5. cutchswife

    RT @_RachelReeves_: RT @leftfootfwd: Osborne's optimism looking less and less plausible http://bit.ly/gVJk3E

  6. Sean

    Isn’t your policies predicated on the idea that:
    a) Lenders will continue to fund your spending; and
    b) That you have identified and implement spending cuts worth £40bn over 4 years

  7. alexsmith1982

    "People increasingly crying out for a gov't on families' side; policies that help…create jobs." http://bit.ly/eu3dbi

  8. Bored London Gurl

    RT @leftfootfwd: Osborne's optimism looking less and less plausible: http://bit.ly/f3MBNk – @_RachelReeves_ responds to the GDP figures

  9. Mike Thomas

    We need a re-invigorated economy – with jobs across the regions, a greener, fairer and better balanced economy

    So that’s the Labour growth plan is it? How is that different to what Osborne said today?

    Apart from the box-ticking green reference, which is inflating everyone energy bills and making matter worse for households.

    The economy contracted on construction and services and the ONS was first to highlight that the weather did not help.

    Labour’s own Plan A doesn’t exist and with deficit denier No.1 and key architect of the mess we are in as Shadow Chancellor – I’d take Osborne and the coalition everytime.

  10. angelaknowles

    RT @leftfootfwd: Osborne's optimism looking less and less plausible: http://bit.ly/f3MBNk – @_RachelReeves_ responds to the GDP figures

  11. Robin Wilson

    RT @leftfootfwd: a UK government clueless about Keynes' 'paradox of thrift' brings inevitable double dip recession: http://bit.ly/gVJk3E

  12. Éoin Clarke

    1. The weather last winter was dreadful yet the economy still grew.
    2. Osborne’s emergency budget was 7 months ago
    3. VAT and Incoming cuts, made people proactively tighten belts
    4. Government is no.1 customer. When they stop spending, it has a trickele down effect.

    Q4’s figures are undisputably Osborne’s.

    There is a deeply moral argument now for slowing cuts.

  13. Sean

    Eoin, what would happen if that spooked the markets and they decided to stop lending the UK government cash?

    As we saw in the Eurozone; this spreads to not lending money to banks and large corporates causing massive problems for all levels.

  14. Anon E Mouse

    Eoin

    1. The weather was far worse this year – it was the worst for 100 years. Just imagine how bad it would be if there wasn’t global warming.

    2. The emergency budget wasn’t supposed to cure all our ills – it was just an emergency budget.

    3. Maybe.

    4. The government shouldn’t be the No1 customer – that as an idea is about as feasible as the Soviet Union.

    Governments stop spending when there’s no money left – especially when it has to be borrowed. And there isn’t any money left…

  15. Stephen W

    “The government’s claims that the numbers are just because of snow is a complacent response that doesn’t do justice to the risk being taken with jobs and growth.”

    That’s damn rich coming from the Labour Party. The party that still refuses to take any (even partial) responsibility for the deficit or the recession. Despite being in government for a clear decade before hand. Not to mention their approach pre-crisis. Complacency sums up just about everything that was wrong with the previous government.

    This is to to defend the Coalition. They are quite possibly complacent too. But a bit of humility from this and other Labour Party drones would be appreciated as well.

  16. Stephen W

    Whoops. Start of last paragraph meant to say “”This is NOT to defend the coalition”

  17. Mike Thomas

    Eoin,

    Did I hear that right? A trickle down effect?

    So you are a monetarist now?

    Interesting.

    I think what you are referring to is the Keynesian concept of multipliers.

    Still, why let economic theory get in the way of Labour running the economy into the ground.

  18. Ash

    “George Osborne and the Treasury must urgently rethink their reckless plan to cut the deficit too far and too fast”

    Now there’s a bit of spin that needs doctoring. Rather than drawing attention to the fact that the Tories’ stated aim is to cut the *deficit* quickly, why not put things in terms of Osborne planning to cut *spending* too far and too fast? Point being that by doing so, he risks pushing welfare spending upwards and tax revenues downwards, meaning the deficit stays higher for longer.

    The most laughable thing in all this is that the Tories continue to ridicule any suggestion that the deficit is largely the result of a two-year global crisis on the scale of the Great Depression, while happily asserting that the recent contraction of the economy is largely the result of a two-week cold snap.

  19. Liberal Vision » Blog Archive » Growth balls

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  20. Bryony Victoria King

    RT @leftfootfwd: Osborne's optimism looking less and less plausible http://bit.ly/gVJk3E – by @_RachelReeves_

  21. Anon E Mouse

    Just heard Ed Balls on Radio 5 Drivetime and he said it was the snow that caused the .5% this quarter.

    Is he wrong as well?

  22. Mags W

    RT @leftfootfwd: Osborne's optimism looking less and less plausible http://bit.ly/gVJk3E – by @_RachelReeves_

  23. Robin Dalton

    RT @MagsNews: RT @leftfootfwd: Osborne's optimism looking less and less plausible http://bit.ly/gVJk3E – by @_RachelReeves_

  24. Jay Baker

    RT @_RachelReeves_: RT @leftfootfwd: Osborne's optimism looking less and less plausible http://bit.ly/gVJk3E

  25. BenM

    @Mike Thomas

    Labour’s own Plan A doesn’t exist and with deficit denier No.1 and key architect of the mess we are in as Shadow Chancellor – I’d take Osborne and the coalition everytime.

    Well… they say there’s one born every minute.

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