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.
Today, 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.
For 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:
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.
• 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.
31 Responses to “Osborne’s ideology-driven economics have failed: We’re all paying the price”
Nikostratos
ideology??? Nah! just Old Etonian vanity
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.
Mr. Sensible
Where’s it all gone wrong for Cameron?
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.
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.