The growth-deniers' game is up. Just look at the numbers.

Contrary to the coalition government's spin, the economy was recovering nicely under the last Labour

Contrary to the coalition government's spin, the economy was recovering nicely under the last Labour government.{C}

Today is the day to report back on the battle between the coalition and the opposition over who has been right on the economy. Keynes versus Hayek; growth-deniers versus deficit-deniers (supposedly like me). The jury has now reached its verdict and the coalition is guilty as charged -- they have destroyed growth and pushed the UK into a recession worse than we saw in the 1930s. Contrary to the coalition government's spin, the economy was recovering nicely under the last Labour government.

Yesterday, the European Commission said Britain's economy will grow by just 0.7 per cent this year, 0.6 per cent in 2012 and 1.5 per cent in 2013. The figures are miles below the 1.7 per cent, 2.5 per cent and 2.9 per cent growth forecast by the Office for Budget Responsibility (OBR) in March. It is broadly consistent with the forecasts of the CBI and NIESR. Given that we have already had growth of 1 per cent in the first three quarters of the year, this suggests that the Commission is expecting negative growth of 0.3 per cent in Q4 and/or the earlier quarters to be revised down. The OECD, the IMF and the EU have now given up on George.

The recession can be split into four parts. First, the "down" part which started in the second quarter of 2008 and went on for a total of five consecutive quarters of negative growth, during which output fell by an enormous 7.4 per cent. Second, the "up" part, which also lasted five quarters (from Q3 2009 to Q3 2010) when under Alistar Darling and Gordon Brown, growth increased by 2.8 per cent. Then, the "flatline" phase under George Osborne, which is also fifteen months long (from Q4 2010 to Q4 2011) with growth of 0.2 per cent, assuming we use the EU's estimates. Osborne destroyed Darling's recovery. Then, finally, the "stagnation" phase, lasting 24 months (from Q1 2012 to Q4 2013) with growth of 2.1 per cent over two years, or an average of just over 1 per cent.

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So by the end of 2013, only 5.6 per cent of the 7.4 per cent drop in output will have been restored. This is worse than the 1930-1934 double-dip recession, which had only a slightly bigger output drop but was over in 48 months. By the end of 2013, this will number 69 months and counting. It is no good blaming the eurozone, old chap. This means that Osborne will have caused the longest-lasting downturn for at least a century, which because of his incompetence has now turned into a depression of epic proportions. Acording to the EU Commission's forecasts, it will take Slasher Osborne 39 months to achieve the same growth of 2.8 per cent as Alistair Darling's policies achieved in fifteen months. Spin your way out of that one, Mr Fallon. If the problems were all inherited from Labour, how come they were able to grow the economy twice as fast as the coalition has? Blaming the eurozone won't wash.

Judging by Vince Cable's comments yesterday, it looks increasingly unlikely that the coalition has much of a plan B. The Autumn Statement is due at the end of the month, but he appeared to rule out tax cuts or a new burst in spending. Infrastructure projects are fine, but will take a long time to have an effect, as will credit easing. That old Tory chestnut of removing regulation and red-tape, as ever, is likely to do diddly squat. The growth-deniers' game is up. Just look at the numbers.

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

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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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