Economic slow-down: it’s not the snow, it’s confidence

by Pat McFadden

When this government was elected they decided to cut public spending sharply and ditch Labour’s industrial strategy at the same time. The first obviously got the lion’s share of the headlines, but two events in recent days have highlighted the folly of their second decision.

First, Sir Richard Lambert chose his final speech yesterday as director general of the CBI to bemoan the lack of vision from the government on what the future UK economy might look like, or any plan for the future. He talked of politics triumphing over sensible policy on a range of issues from aviation policy to the immigration cap to the cash starved local enterprise partnerships, which are being set up in place of regional development agencies. As Sir Richard pointed out, “it’s not enough just to slam on the spending brakes. Measures that cut spending but killed demand would actually make matters worse”.

Second, this morning’s GDP figures came as a shock to markets. And George Osborne’s attempt to blame the snow will fool no one. The really worrying thing about today’s figures is that they come before the impact of the VAT rise and the spending cuts which will kick in from March. Rather than snow, I suspect the real impact has been on confidence, which is why responsibility must lie at the door of the government.

This government came into office desperately talking up the UK’s economic problems, saying we were next in line for a Greek style crisis. They told the public that there was no alternative to spending cuts on a far deeper and swifter scale than anything planned by Labour. And they no doubt congratulated themselves on framing the argument so that nothing seemed to matter except the timing of deficit reduction.

But a politically-led strategy looks to have been bad economics. Businesses and the public heard all this and took the message on board. And that will have had an effect on consumer confidence and investment decisions.

So what now? The government’s decision to pull their planned growth paper in the autumn now looks much more significant than at the time.  Having ditched Labour’s plans to try to rebalance the economy in the wake of the financial crash, they found themselves with nothing to say. The symbol was the cancellation of the loan to Sheffield Forgemasters, but the reality had a wider significance. They had derided a government role in industry as almost corrupt. How could they now back job creation and growth in an active way? This was dismissed as “top down” – the catch all expression used by this administration to avoid governmental responsibility.

The fact is that when cuts are being made in public spending and government expects the private sector to fill the gap, then an active government role in support of the industries and opportunities that can create jobs in the future is needed more than ever.

Labour was later than it should have been with active industrial policy, a reticence born of a desire not to repeat the mistakes of the 1970s. But active industrial policy doesn’t have to be about bailing out the weak. It can and should be about helping the strong do better and gaining first mover advantage in a fast moving technological world.

This government’s abandonment of the Labour approach has only added to the country’s economic problems. And the GDP figures expose their policy cupboard as bare. Sometimes the attractive political strategy turns out to be very far from being the best policy.

Pat McFadden is Labour MP for Wolverhampton South East.


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11 Responses to “Economic slow-down: it’s not the snow, it’s confidence”

  1. william says:

    Mr. Mcfadden,I have just watched a 14 minute interview on CNBC with the Labour PM ,rejected by the electorate ,giving a Kremlin style lecture on how growth can be arranged by government.As his experience has demonstrated,saying ‘no more boom and bust’ did not abolish the economic cycle,and it is better,to put it mildly,to pay down government debt in the upswing, rather than increase it, as Brown fatally did.If ever increasing public spending and debt is the answer, how come Russia and all those other satellites ended up with third world standards of living?To win the next election, we have to do more than sound off about one set of figures, which prove nothing.Since you ask,all that actually happened was that a whole lot of indebted consumers paid down some debt, with obvious consequences.

  2. Gary says:

    I have reservations about the current policy, and a debate is surely worthwhile, but it is utter nonsense to lay the blame with the cuts.

    We are still spending the amounts set by Labour*. The cuts haven’t even happened yet. We are still in the same Financial Year as set by Labour.
    If you really think that is the cause of the current stumble, the Labour party would have a lot of explaining to do.

    But it is unlikely you *do* actually think that the current spending levels – as set by you – are really the root of this problem. Which leaves you very exposed to the charge of political opportunism.

    More constructive would be suggestions about how to stimulate *private sector* jobs.

    *except for interest repayment levels obviously.

  3. Chris says:

    @william

    “I have just watched a 14 minute interview on CNBC with the Labour PM”

    Well, at least you’re widening your news sources to something other than the daily mail.

    “If ever increasing public spending and debt is the answer, how come Russia and all those other satellites ended up with third world standards of living?”

    Now, maybe Eastern Europe isn’t your speciality but somebody with such allegedly brilliant economic credentials would at least know that living standards collapsed in the former USSR after the fall of communism and the oligarchs had nicked all Russia’s natural resources.

    “To win the next election, we have to do more than sound off about one set of figures, which prove nothing.”

    Actually they do prove that a government shouldn’t go around back mouthing the economy, Cameron himself said the “country is bankrupt” in PMQs and he accuses Labour of talking down the economy – bloody cheek!!!

    “Since you ask,all that actually happened was that a whole lot of indebted consumers paid down some debt, with obvious consequences.”

    Well quite, surely you’ve heard of the paradox of thrift???

  4. Chris says:

    @Gary

    Ermmmm, McFadden wasn’t blaming the “cuts”! He was saying that the coalition had talked down the economy for political reasons, immediately after the GE business and consumer confidence collapsed as Cameron, Osborne and Clegg set about trashing Labour’s recovery plans.

    “But it is unlikely you *do* actually think that the current spending levels – as set by you – are really the root of this problem. Which leaves you very exposed to the charge of political opportunism.”

    WTF? You’re totally misrepresenting what the article says, didn’t you read it or is this a strawman?

    “More constructive would be suggestions about how to stimulate *private sector* jobs.”

    Again, read the article, McFadden has suggested that the coalition need to follow Labour’s lead in adopting a more active industrial policy. Why cut the relatively tiny £80m loan to Forgemasters which would have set the UK up as a leader in civil nuclear reactor manufacturing.

  5. william, did Labour boom and bust leave you so penniless you had to pawn your spacebar key?

    If not, could you please learn to use it and place commas correctly?

    kthxbai

  6. william says:

    @yawn.Since you ask ,I read Russian economic history as part of my Cantab degree, 1972,and aside from the mass murder of kulak peasants,it was not hard to predict that a system based on a market less centralized economy would fail.The paradox of thrift,the consumer realising that house prices are falling , retail prices are rising,debt is not clever,entails an immediate drop in consumption(long overdue), but no reason to suppose that the UK economy will not return to a 2.25 percent growth rate well before the next election.And then?What lessons have Balls, E milliband,Alexander learnt from May,2010?Take on the markets and increase public spending?I think you were born after 1976.

  7. Chris says:

    @Edward

    I’ve been telling him to that for ages.

    @william

    “Since you ask ,I read Russian economic history as part of my Cantab degree, 1972”

    What ever you say, Walter.

  8. As someone born before 1976, I have to say that william seems to have a bit of a problem here.
    I think rational people can agree that command economies do not work at the best of times, and lead to all sorts of horrors. As do unregulated market free-for-alls, such as the crap we have been dealing with in recent years.
    Lucky you, with your Cantab Degree, there are a host of people in the present cabinet with either Oxon or Cantab degrees. What a splendid bunch – not a speck of sense between them.
    Btw, Burgess, Philby and McLean got their Cantab degrees before 1976 as well… Snob.
    http://clemthegem.wordpress.com/

  9. Of course the UK is on a path of certain decline. It has been since the end of WW2. The country was basically bankrupted by the war and apart from American money used to finance things like the Welfare State in the 40s and Maggie selling off the countries assets in the 80s it’s has been a steady decent throughout that time. The UK is a power in decline and will be for the foreseeable future.

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