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