by Matthew Whittley
Perceptions of economic competence will largely determine who takes power in 2015. It is well-known that Labour has its work cut out to regain trust with the nation’s purse strings, but if anyone needed further proof that the economy isn’t safe in George Osborne’s hands, the need look no further than today’s economic news.
The latest figures tell us that there has been no improvement in underlying borrowing, which is has been running at almost the same level for the past two years. According to OBR forecasts, it will be around the same this year. As a result of the failure to stimulate any growth in the economy, the government is now set to borrow £245 billion more than planned
George Osborne’s main opportunity to do something about the hole he’s dug for the nation, was in March with the budget. But he blew it: the budget amounted to no more than a “do nothing” series of holding measures.
With household budgets squeezed and business lacking confidence to invest, Osborne should have prioritised growth by borrowing to invest in capital projects, rather than borrowing to finance failure as is currently happening. One doesn’t need a PhD in macroeconomics to know that capital spending has a huge multiplier effect on growth.
However, the derisory £2.5bn of capital investment promised in the budget falls way short of what is required to kick-start the economy. To put this figure in context, the Economist, hardly a bastion of Keynesianism, recommended an extra £28bn of infrastructure investment.
It should have become clear by now to him that the debt can’t be reduced in the absence of growth. The UK has grown only 0.7% since the third quarter of 2010. During that time, Japan and Italy are the only major G20 economies to have performed worse than the UK.
Even in the month since the budget, Britain’s economic position has materially deteriorated: Fitch have downgraded the UK’s credit rating and today’s borrowing figures tell us we have made no progress in paying down our debt.
All of this means that austerity will now have to be prolonged until at least 2018. The reason we no longer hear talk of the danger of entering a Japanese-style “lost decade” is because we are now in middle of one. Yet despite this overwhelming body of evidence that his strategy has failed, Osborne refuses to change course. His economic incompetence is matched only by a dogmatism that makes it almost impossible to imagine a scenario that would have to occur for him to consider alternatives.
However, as Osborne’s reputation is shredded, Labour still need to work on repairing theirs.
The results of a YouGov poll conducted in the days following the budget show that despite Osborne’s miserable record there is a long way to go to achieve this: 34% trust the coalition on the economy, compared with 26% trusting Labour. This is due, in part, to the Tories’ and right-wing press’ success in reconfiguring a global banking crisis as a crisis of public spending.
If Tory MPs had donated a pound to the Exchequer every time they referred to “the mess left by Labour”, it’s possible that the national debt would have been paid off by now.
Although it may be tempting to sit back and watch the Chancellor self-destruct, this is unlikely to be enough to ensure a Labour majority in 2015. With the election still more than two years away, there remains plenty of time for the “green shoots” of recovery to appear. This would greatly strengthen the Tory’s position and would enable them to campaign along the lines of “we are on the right path; we can finish the job”.
Labour cannot be complacent. Now is the time to show that the party not only understands voters’ concerns but also has a clear idea of how it would go about reversing the decline in living standards.
Now is the time to start outlining a vision of a one nation economy in which everyone has a stake and in which social justice and economic competence go hand in hand.
Today’s economic figures tells us Osborne’s “do nothing” plan, which amounts to little more than crossing his fingers and hoping for the best, isn’t working. Labour, when planning for victory in 2015, must not follow suit.
Matthew Whittley works in the housing sector in a Midlands-based housing association, analysing the impact of coalition policies
Tags: debt, deficit, George Osborne, Growth, Matthew Whittley, OBR
The debt can’t be reduced period.
1. You’ve confused debt with borrowing. A Bernie Maddoff accounting fraud.
2. If we look at true debt, 2005-2010 the pensions debts alone went up by 736 billion a year, on top of the then deficits.
Taxes curently are 550 bn.
How much instantaneous growth (overnight) do you need to get another 800 bn plus of taxes just to stand still?
Well its 260% growth is required, just to be able to keep get rid of the deficit and pay the interest on the debts.
I think we should commit to sticking with the baseline of the Comprehensive Spending Review – failure to do that would allow Tories to ramp up the rhetoric which will cost us dear. On the issue of the £28bn investment on infrastructure, that should be done by unlocking pension funds in order to stimulate growth.
What I would like to see Labour do again and again between now and the election is to rigorously challenge the all pervasive belief that supporting a nation’s economy is analogous to managing a personal credit card account. It seems this ruinous belief runs through the mindset of ever one of our broadcast journalist. Searching questions necessary to challenge this never feature…why is that? An approach which demands an understanding of the term political-economy might prove fruitful. It’s interesting that this term, which has meaning and purpose, has all but disappeared from our nation’s lexicon. It’s interesting because demanding a consideration of the nature of a political-economy, as opposed to, an economy, might usefully point to why so much investment capital, that absolute necessity, currently sits unused out of ‘risks’ reach.
” The mess left by Labour”. Your tone indicates that labour didn’t leave the mess, when clearly it did. You should start with a little humility and admit that Labour got it wrong. At least the Labour minister had the good grace to leave a note saying there was no money left.
The banking crisis showed up profligate governments which spent money they did not have. These were usually Socialist.
“The party understands voters concerns”. Are you serious ? Labour has got itself on the wrong side of every issue and public opinion, with Canute Miliband telling the public at every opportunity that we are wrong and he is right – a sure fire way to win an election ?
“One nation economy” . Oh dear, how cringeworthy is that ?
@ Ex-labour; I strongly suspect that Matthew Whittley is of the opinion that the Labour government were not responsible for an international financial crisis. Furthermore I agree with him:
In 2007/2008 the cyclically adjusted current Budget balance was under 1% of GDP;
In 2007/2008 Public debt was significantly below that of 1997;
Between 1997-2010 the debt to GDP ratio was better than the Conservative record from 1979-1997.
It may be true that Labour could have spent less and paid off more debt, but that was a policy decision that until 2008 the Conservative party agreed with. Cameron and Osborne pledged to match Labour’s spending on education and health.
I actually think that Labour were right to invest in schools and hospitals during the economic boom. When borrowing is low it makes sense to build for the future. The Conservative govt between 1979-1997 didn’t invest enough in hospitals and schools; that was why Labour had to spend the money.
They did not spend every penny prudently and I am not a fan of the PFI deals that were brokered, but the policy of investment was a sound one.
Regardless of political persusasion no government ever has cash to spend; public expenditure projects are always funded on the basis of future tax receipts. If any government spends ‘too much’ money it is because it hasn’t first devised an appropriate taxation policy.
I agree with much of this article but it is missing exactly how Labour can regain the trust of voters.
I think Labour are hoping they do not need to regain anything, I suspect they are praying everything gets so bad the voters will have little choice
Od course Labour were right to invest during the good years, they just invested very, very badly and confuse the words ‘investing’ and ‘spending’. Vast sums were poured out for very little benefit – sometimes things actually got worse.
As long as balls is in the equation, Labour cannot hope to gain any credibility on the economy; the only thing that would be worse would be to bring back Darling, but fortunately he’s too bus making a mess of the ‘Better Together’ campaign and trying to score cheap points of the gnats through grotesque misrepresentation. Thankfully that keeps him away from anything more important.