Osborne’s ideology-driven economics have failed: We’re all paying the price

The double dip recession is a result of George Osborne’s ideological agenda and rejection of stimulus economics, writes Cormac Hollingsworth.

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“Let’s get the economy moving to help us with the deficit,” David Cameron exhorted in the final televised debate before the 2010 election. The reality of his government’s economic stewardship has been the opposite. Rather than the growth his ideologically driven economic policies promised, growth stopped in Q4 2010.

George-Osborne-corpseToday, the UK economy is heading into a full-blown recession, and the coalition’s economic incompetence is finally revealed.

There will be much misdirection on the recession numbers today. First, it will be claimed that the eurozone ’caused the second dip’: the reality is that the Eurozone has grown faster than the UK since the coalition took over.

Second, the notion of a ‘technical recession’ will be bandied about, denying the reality that the economy is in big trouble. The OBR expected zero growth in the next quarter, so there will be no respite, and it could get worse.

To compound the errors, the economy is now even more imbalanced towards government and finance since the coalition has taken over. And while no-one today will think about the deficit, they should.

Last year’s growth scare saw the coalition abandoned balancing the budget in this parliament.

We now face the possibility that the OBR will predict that the deficit will be 6% of GDP in 2014-15. Thus far, the resilience of this government to its own incompetence has been impressive. After today, its economic credibility is done for.

With today’s figures, since Q3 2010, the UK economy has shrunk by -0.2%. As we have declined, the United States has powered ahead by up to 2.8%. This difference in growth is reflective of the ideological differences between the economic policies of each.

Growth-04-12-tableFor Britain’s ideologically driven coalition government, it was the public sector that was responsible for the largest private sector crash since the 1930s.

Instead of adopting the stimulus policies of both America and the core eurozone countries, whereby their governments continued to intervene in support of the private sector, the coalition pulled the plug on public sector support, confident that the UK’s private sector would surge.

Sure enough, after the government pulled the plug on the public sector, the lights went out in the private sector too (as Table 1, right, shows).

Indeed, far from the promised rebalancing of our economy, imbalances have increased under the coalition. Under the coalition, the public sector, together with the business services sector, which includes the City, have expanded while the rest of the economy flounders: retail is struggling, and construction and production are shrinking.

Next quarter will provide no relief. The OBR formerly predicted that the second quarter would be flat at best. With expectations now revised lower, as Table 2 shows, the chances are that this won’t be a two-quarter ‘technical recession’.

Table 2:

Growth-04-12-table-2
There are broader consequences for our budget deficit. After the flatlining in 2011, this is the coalition’s second growth scare. Last year’s flatlining increased the 2014-15 predicted deficit from 2.1% of GDP to 4.5% of GDP, this year’s recession will have the same effect. It’s quite likely that come November, the OBR will predict that the budget deficit will be expected to be closer to 6% by the end of this parliament.

 


See also:

UK double-dips for first time in 37 years; Balls: Government’s economic credibility ‘in tatters’ 25 Apr 2012

OBR get growth projection wrong (again) 25 Apr 2012

Osborne’s expansionary fiscal contraction has failed 24 Apr 2012

Headline unemployment fall is good news, but underlying picture remains grim 18 Apr 2012

We need a firm limit on the time we are prepared to tolerate anyone being unemployed 17 Apr 2012


 

The reality is that there is still time to turn this around. We are still three years from the next election. If this coalition can do such damage in two short years, there’s plenty of time for it to be corrected. If we wait, it will cost us billions more in borrowing, and innumerable lost opportunities for our entrepreneurs and young people.

 


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31 Responses to “Osborne’s ideology-driven economics have failed: We’re all paying the price”

  1. Alex Canfor-Dumas

    Two excellent blogs: @rafaelbehr on the politics //t.co/EJAcLJnu and @CormacHolly on the economics //t.co/OoG5vZg9

  2. David Taylor

    RT @leftfootfwd: Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/dttc4VyT

  3. LCID

    Remember – Osborne's economic mismanagement has seen GNI go down which means the aid budget will be £1.2bn less //t.co/cTfhsWmA

  4. Simon Joseph Jones

    Remember – Osborne's economic mismanagement has seen GNI go down which means the aid budget will be £1.2bn less //t.co/cTfhsWmA

  5. Cormac Hollingsworth

    I penned this earlier @leftfootfwd: Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/9SfilmEk

  6. Joe Mulhall

    @duncstod86 @robpowell_87 Views? //t.co/cVRqd8fS

  7. Alex Snowdon

    Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/NMBKH8v2

  8. Mark Howard

    Osborne’s ideology-driven economics have failed: We're all paying the price, writes @CormacHolly: //t.co/IbLwDUCh #recession

  9. Dollar Man!

    Osborne's ideology-driven economics have failed: We're all paying the price: The reality of his government's eco… //t.co/tVmU2Gch

  10. Economics Guide

    Osborne's ideology-driven economics have failed: We're all paying the price //t.co/FCgqYHbQ

  11. Nikostratos

    ideology??? Nah! just Old Etonian vanity

  12. Blarg1987

    Why for the last 30 years has the goverments both left and right gone away from satte support to the private sector fixing all ills. jobs and growth only come from state investment, be it in direct projects, or indirect research that leads to private sector innovation.

    Untill both sides accept this reality and for the greeater good but ideology behind practicality we will continue with low or no growth and no future manufacturing base.

  13. Mr. Sensible

    Where’s it all gone wrong for Cameron?

  14. Anonymous

    You are right that there is still time before the next election to boost private sector output and cut unemployment.
    It is not politically realistic to expect a change of strategy, in the sense of a fiscal austerity programme that is not working well and a wildly expansionary monetary policy that is, in my view, largely counterproductive because the consequent inflation is cutting real wages and diverting money from business into assets.
    Without changing strategy, however, there are many individually modest measures that can be taken, industry by industry, to get us back to a realistic 2 per cent annual growth rate.
    To help construction we could:
    1) Bring forward many small road and rail improvements, if necessary by delaying start-up spending on grand projects. For example, instead of spending on consultancy and land-buying for HS2 we could extend the Croydon tramway faster for less.
    2) For a three year period, we could extend the reduced rate of VAT on gaia-friendly home improvements to qualifying conservatories, loft conversions and extensions and to items currently restricted to people on means-tested benefits, such as double glazing. Who cares if the rich benefit as long as they generate extra output and jobs?
    3) The Government could extend an extra £1-3 billion in loans and repayable grants to third sector housing to raise the rate of home building, with the proviso that the homes are sold at cost or refinanced within three years.
    To help industries we could:
    1) Put off the VAT on static caravans for three years, boosting short-term demand.
    2) Accelerate approval for the first of the new- generation atomic energy stations, instead of delaying it as DECC is now doing.
    3) Tailor taxes and regulation to promote our export growth industries such as pharmaaceuticals, medical treatment , creative industries, education and popular sport.
    To help jobs, we could :
    1) Set conditions for all public procurement, within EU rules, to favour local firms and employment, for instance by favouring bids that maximise training, apprenticeships and low transport emissions. The Welsh government has started to do this.
    2) Direct that all public sector call centres should be in the UK.
    3) Severely tighten gangmaster rules so that foreign semi-indentured labour is largely eliminated.

    I am sure that your readers can think of many other individual instances of action that could be taken to promote UK businesses and short-term output and jobs within the current fiscal strategy, whether one backs that or rejects it.

  15. Blarg1987

    I have to agree with most of these policies, I think to go further, if the state is to pay for further investment be it in nuclear power or start up industries, it should be classed as an investor and obtain share returns of the value it invests, with this money raised it can be ploughed back into paying for the capital and later on re invested to encourage further growth.

  16. Anonymous

    Or there will be new rounds of cuts to basic services. Which will create even more of an issue down the road and likely leads to cuts to the already pathetic JSA and the like, with attendant issues of starvation and forced migration.

  17. Anonymous

    Ah yes, doing the same, harder, is going to be better! You’ve already caused a double dip, how much more damage do you want to do?

  18. Blarg1987

    Sorry but how will having the state invest in large infastructure schemes such as new rail and road links, as well as research into new technologies and create demand i.e. 20% of all state vehicles to be electric cause a recession? History has shown by doing such things you create demand in the economy which buisness sees a market for and wants to invest in, this then encourages confidence and leads to innovation in the private sector that leads to self growth from which increased taxes are raised.

    The recession was caused by an economy based on assets and their vakluation i.e. property prices, as well s high consumer spending.

  19. BevR

    RT @leftfootfwd: Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/NkvRc2Ee

  20. Alex Braithwaite

    RT @leftfootfwd: Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/RyclZ03E

  21. JC

    So are you saying that economics driven by ideology is wrong, or just some? Not clear here. Would you prefer to have an appointed technocrat (Italy, Greece…) who would have no ideology?

  22. BevR

    RT @leftfootfwd: Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/NkvRc2Ee

  23. dsugg

    RT @leftfootfwd: Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/NkvRc2Ee

  24. Les Seavor

    RT @leftfootfwd: Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/NkvRc2Ee

  25. H. O.

    RT @leftfootfwd: Osborne’s ideology-driven economics have failed: We're all paying the price //t.co/sJuJo3Tv

  26. Anonymous

    High spending. HIGH spending?

    Wealth has flowed to capital and away from wages, spending patterns have been quite normal for productivity.

    Demanding 20% of vehicles be electric, inflating prices in the sector to the detriment of the poor, is a typical kneejerk reaction.

    Moreover, roads beget roads, and the problem with rail is definitely NOT underfunding but inefficiency! Research? Pheh.

    Try houses and schools. And not cutting back on what you give poor people, but balancing things by other means. Like housing price caps, ending excessive housing subsidies without causing mass displacement…

  27. Balls: “Complacent and out of touch” Cameron and Osborne to blame for deeper double-dip | Left Foot Forward

    […] Osborne’s ideology-driven economics have failed: We’re all paying the price 25 Apr […]

  28. Now the EC warns Osborne: Deficit “projected to fall more slowly” due to weak growth | Left Foot Forward

    […] Osborne’s ideology-driven economics have failed: We’re all paying the price 25 Apr […]

  29. Viv Savage

    @mp4chester Gideon Osborne’s ideology-driven economics have failed miserably, do you have a Plan B? //t.co/g5fIJa8b

  30. Mo Goudah

    Osborne’s ideology-driven economics have failed: We’re all paying the price //t.co/u2TJlE1d #PMQs

  31. Jaikiranmaram

    Osborne’s ideology-driven economics have failed: We’re all paying the price //t.co/u2TJlE1d #PMQs

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