The time for sneering is over

Naive politics will always have to deal with economic truths. And the latest data leaves Osborne, an

I have to say, I am beginning to feel a bit sorry for our dear Chancellor, who has backed himself into a corner. He was so confident when he came into power that he was right. All that sneering about the Labour government having failed and that he was going to put us on the path to nirvana.

Unfortunately, naive politics of that kind was always going to have to deal with the economic data. Osborne's economic strategy was always doomed principally as it had zero plans for growth; indeed, we are still awaiting an announcement of a policy for growth but now it is too late. Denying the need for a plan B was always a dangerous strategy.

In a speech at Bloomberg on 17th August 2010, Osborne argued as follows:

I'm optimistic that if we:
- stick to the course we have set ourselves on;
- hold firm to our plans;
- deal with our debts;
- start to rebalance our economy;
- and provide the stability Britain has been so lacking in recent years;

then we can navigate our way through to calmer waters.

The alternative -- to change course, put off dealing with our problems, be in denial about the scale of the deficit -- is the surest way to disaster. It would wreck the British economy.

And, ludicrously, he went on to argue: "We are all in this together."

Unfortunately, as I have been predicting would happen from the formation of the coalition, sticking to Osborne's economic plans is wrecking the British economy. No stability, rising unemployment, no calm waters and no rebalancing; and, most importantly, the consumer is running scared with negative real wage growth, rising prices and rising fear for the future.

The data today on the consumer side is horrid once again and, added to that fear, is likely to be a major downward pull on growth. This is another nail in the coffin for the OBR's growth forecast. In March 2011, the OBR forecast that consumption would make a positive contribution to growth in 2011 and even more so in subsequent years. That doesn't look likely.

Retail sales volumes fell, on a year ago in August, at the fastest pace for over a year, the CBI said today. Retailers were the most negative they have been about the general business situation since February 2009. The CBI's latest quarterly distributive trades survey found that 31 per cent of retailers saw the volume of sales rise in the two weeks to 16 August, while 46 per cent said they fell. The resulting rounded balance of -14 per cent was in line with expectations (-12 per cent) and the most negative since May 2010 (-18 per cent). A balance of -11 per cent of retailers said they felt more negative about the business situation over the next three months than they did three months ago; the most negative for 18 months. Retailers are scaling back investment plans over the next 12 months, with the balance of -11 per cent the most negative since February 2009 (-26 per cent). Not good.

The Nationwide Consumer Confidence Index for July fell by two points to 49 points and now stands at a near identical level to January 2011. Over half of consumers believe that it is currently a bad time to make a major purchase. Especially worrying was how the proportion of people who believe the economic situation will be better than today in six months time decreased by 3 percentage points. Robert Gardner, Nationwide's chief economist, said:

At 49 points, the main confidence index remains well below its long-run average reading of 79. With the economic recovery still facing strong headwinds it is unlikely that we will see any considerable improvement in confidence in the remainder of 2011. Indeed, it may be that we see a further deterioration in August, following riots in a number of UK cities and the sharp declines seen in stock markets around the world. Overall, conditions for the UK economy remain challenging, especially for consumers.

Bad.

Plus, Martin Weale, one of the inflation hawks on the MPC, in a speech today in Doncaster explained that he changed his vote this month from an increase of 25 basis points -- that he had voted for in the previous seven meetings -- to one of no change. It was because of:

. . . the weaker economic outlook . . . the need for insurance is less than it was; by the time we produced our August forecast, the market path for interest rates consistent with keeping inflation close to its target was much less steeply sloped. Averaged over the next two to three years, the interest rate did not need to be as high. As a result, I did not see the case for an immediate increase in bank rate at our last meeting in August.

The economy is weakening and the chances are that the MPC will have to do more quantitative easing -- and soon.

We are not all in this together and Osborne's policies are wrecking the rapidly slowing UK economy. The time for sneering is over.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

Getty Images.
Show Hide image

Five things we've learned from Labour conference

The party won't split, Corbynite divisions are growing and MPs have accepted Brexit. 

Labour won't split anytime soon

For months, in anticipation of Jeremy Corbyn’s re-election, the media had speculated about the possibility of a Labour split. But the party’s conference confirmed that MPs have no intention of pursuing this course (as I had long written). They are tribally loyal to Labour and fear that a split would prove electorally ruinous under first-past-the-post. Many still expect Theresa May to hold an early general election and are focused on retaining their seats.

Rather than splitting, Corbyn’s opponents will increase their level of internal organisation in a manner reminiscent of the left’s Socialist Campaign Group. The “shadow shadow cabinet” will assert itself through backbench policy committees and, potentially, a new body (such as the proposed “2020 group”). Their aim is to promote an alternative direction for Labour and to produce the ideas and organisation that future success would depend on.

MPs do not dismiss the possibility of a split if their “hand is forced” through a wave of deselections or if the left achieves permanent control of the party. But they expect Labour to fight the next election as a force at least united in name.

Neither the Corbynites nor the rebels have ultimate control 

Corbyn’s second landslide victory confirmed the left’s dominance among the membership. He increased his winning margin and triumphed in every section. But beyond this, the left’s position is far more tenuous.

The addition of Scottish and Welsh representatives to the National Executive Committee handed Corbyn’s opponents control of Labour’s ruling body. Any hope of radically reshaping the party’s rule book has ended.

For weeks, Corbyn’s allies have spoken of their desire to remove general secretary Iain McNicol and deputy leader Tom Watson. But the former is now safe in his position, while the latter has been strengthened by his rapturously received speech.

Were Corbyn to eventually resign or be defeated, another left candidate (such as John McDonnell) would struggle to make the ballot. Nominations from 15 per cent of MPs are required but just six per cent are committed Corbynites (though selection contests and seat losses could aid their cause). It’s for this reason that allies of the leader are pushing for the threshold to be reduced to five per cent. Unless they succeed, the hard-left’s dominance is from assured. Were an alternative candidate, such as Clive Lewis or Angela Rayner, to succeed it would only be by offering themselves as a softer alternative.

Corbynite divisions are intensifying 

The divide between Corbyn’s supporters and opponents has recently monopolised attention. But the conference showed why divisions among the former should be interrogated.

Shadow defence secretary Clive Lewis, an early Corbyn backer, was enraged when his speech was amended to exclude a line announcing that Labour’s pro-Trident stance would not be reversed. Though Lewis opposes renewal, he regards unilateralism as an obstacle to unifying the party around a left economic programme. The longer Corbyn remains leader, the greater the tension between pragmatism and radicalism will become. Lewis may have alienated CND but he has improved his standing among MPs, some of whom hail him as a bridge between the hard and soft left.

Elsewhere, the briefing against McDonnell by Corbyn allies, who suggested he was an obstacle to recruiting frontbenchers, showed how tensions between their respective teams will remain a story.

Labour has accepted Brexit

Ninety four per cent of Labour MPs backed the Remain campaign during the EU referendum. But by a similar margin, they have accepted the Leave vote. Jeremy Corbyn and John McDonnell, both long-standing eurosceptics, confirmed that they would not seek to prevent Brexit.

Owen Smith called for a referendum on the eventual deal during his leadership campaign. But with some exceptions, such as Angela Eagle, most of his backers have rejected the idea. Though 48 per cent of the electorate voted Remain, MPs emphasise that only 35 per cent of constituencies did. Some still fear an SNP-style surge for Ukip if Labour seeks to overturn the outcome.

The debate has moved to Britain’s future relationship with Europe, most notably the degree of free movement. For Labour, like Theresa May, Brexit means Brexit.

Corbyn will not condemn deselections 

The Labour leader could have won credit from MPs by unambiguously condemning deselection attempts. But repeatedly invited to do so, he refused. Corbyn instead defended local parties’ rights and stated that the “vast majority” of MPs had nothing to fear (a line hardly reassuring to those who do). Angela Eagle, Stella Creasy and Peter Kyle are among the rebels targeted by activists.

Corbyn can reasonably point out that the rules remain the same as under previous leaders. MPs who lose trigger ballots of their local branches face a full and open selection. But Labour’s intensified divisions mean deselection has become a far greater threat. MPs fear that Corbyn relishes the opportunity to remake the parliamentary party in his own images.  And some of the leader’s allies hope to ease the process by reviving mandatory reselection. Unless Corbyn changes his line, the issue will spark continual conflict. 

George Eaton is political editor of the New Statesman.