The deputy secretary general and chief economist of the OECD, Pier Carlo Padoan, tells UK chancellor George Osborne to "slow down the pace of spending cuts".
Following on from my article yesterday, the Times (£) and the Financial Times (£) have now published interviews with the Organisation for Economic Co-operation and Development (OECD) deputy secretary general and chief economist, Pier Carlo Padoan.
They reveal startling new details of how the organisation has turned from being a bulwark for Osborne’s cuts to a frustrating obstruction and thorn in his side.
Back in March, the OECD Secretary-General, Ángel Gurría, stood side-by-side with Osborne at a joint press conference and declared:
“…when you have double-digit deficit you have to move very fast, very decisively.”
Leaving no doubt, he told Osborne to:
“…stay the course.”
Fast forward two months and the OECD has performed a startling u-turn on its support upon which Osborne so depended for the scale and pace of his austerity drive.
Disappointing export performance and the lack of growth due to Osborne’s cuts have now convinced the OECD that the chancellor is executing his cuts too fast. This is highlighted by Pier Padoan now calling upon Osborne to:
“…slow down the pace of spending cuts.”
Echoing Labour’s call for a Plan B, Padoan goes on to say the Tory-led government should:
“…be selective in the selection of spending cuts and their speed.”
In other words, in times of an economic slowdown, Osborne needs to avoid focusing on his political agenda and instead adjust fiscal policy to support growth. This is especially the case in light of the estimated borrowing figures by the OECD for 2012 that amounts to 7.1 per cent, leaving little hope for Osborne to achieve his debt and deficit target by the end of this parliament.
Given his repeated flagging up of the OECD support for his cuts, Osborne will now have great difficulty in ignoring the advice by Padoan. Shadow chancellor Ed Balls believes this intervention is highly significant, and should force Osborne to listen, review and think again about “the speed and scale of his cuts”.
Further pressure was piled on Osborne yesterday with the release of business investment and household spending figures. Business net investment fell sharply by 7.1 per cent in the first quarter of this year, which spells disaster for Osborne’s plan of relying on the private sector to offset the drop in public spending.
With households beginning to feel the squeeze as cuts, taxes and inflation are taking their toll, spending suffered an unexpected drop of 0.6 per cent in the first quarter. With the UK economy being traditionally a consumerist country, with household spending accounting for approximately two-thirds of the economy, it does not bode well for overall growth.
Instead of setting out a plan for growth, Osborne is driving the economy perilously close to the brink of collapse. Valuable allies that had enforced his ideological mission are beginning to wear thin by the day.
Instead of cutting too far, too fast, the Chancellor needs to take a step back and reconsider the simple fact that has been advocated by Labour again and again: the economy needs growth and jobs to get the deficit down. In other words, we need a Plan B.
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