Recession deniers proved wrong

Our economics editor gives his verdict.

So the recession deniers were wrong again. As I predicted, rather than GDP growth for the first quarter of 2012 being revised up it was actually revised down by the ONS today from -0.2 per cent to -0.3 per cent. Output in the production industries was -0.4 per cent, manufacturing was flat while services grew by+0.1 per cent while construction was -4.8 per cent.  The fall in construction is very serious and, according to a report of the Bank of England's agents this week, "in large part due to declining work for the public sector".

Over the last six quarters that I have called the Osborne Collapse the economy has shrunk by -0.4 per cent.  He inherited an economy for Alastair Darling that grew by 3.1 per cent over the preceding four quarters.  Here's the chart.  Four of the last six were negative:

There is every prospect that the next quarter will be negative also even if the euro area doesn't implode.  If it does things will be much worse.

David Cameron in a speech on the economy on the 17 May 2012 said:

"Despite headwinds from the Eurozone, we are on track...We are moving in the right direction.

This is total balderdash. The economy is tanking and the coalition appears totally lost on what to do about it and they still don't have a growth plan. Saying they have a Plan A doesn't do it. We are now paying the price for them not having or implementing a plan B.

Today is the time to do three things:

  1. Cut VAT to 17.5 per cent.
  2. Cut National Insurance on anyone under 25 to zero for two years.
  3. Announce a program of £50bn of infrastructure spending on shovel ready projects. Local authorities can bid for the money for any project already through the planning process. The Monetary Policy Committee can fund it via Quantitative Easing.

It really is time for the cabinet to start working hard.

Photograph: Getty Images

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

Photo: Getty Images
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Autumn Statement 2015: How should Labour respond?

The government always gets a boost out of big setpieces. But elections are won over months not days. 

Three days in the political calendar are utterly frustrating for Her Majesty’s Loyal Opposition – the Queen’s Speech, the Budget and the Autumn Statement. No matter how unpopular the government is – and however good you are as an opposition - this day is theirs. The government will dominate the headlines. And played well they will carry the preceding with pre-briefed good news too. You just have to accept that, but without giving in or giving up.

It is a cliche that politics is a marathon not a sprint, but like most cliches that observation is founded in truth. So, how best to respond on the days you can’t win? Go to the fundamentals. And do the thing that oddly is far too little done in responses to budgets or autumn statements – follow the money.

No choices in politics are perfect - they are always trade offs. The art is in balancing compromises not abolishing them. The politics and the values are expressed in the choices that you make in prioritising. This is particularly true in budgets where resources are allocated across geographies - between towns, cities and regions, across time - short term or long term, and across the generations - between young and old. To govern is to choose. And the choices reveal. They show the kind of country the government want to create - and that should be the starting point for the opposition. What kind of Britain will we be in five, ten, fifteen years as these decisions have their ultimate, cumulative impact?

Well we know, we are already living in the early days of it. The Conservative government is creating a country in which there are wealthy pensioners living in large homes they won, while young people who are burdened with debts cannot afford to buy a home. One in which health spending is protected - albeit to a level a third below that of France or Germany – while social care, in an ageing society, is becoming residualised. One where under-regulated private landlords have to fill the gap in the rented market caused by the destruction of the social housing sector.

But description, though, is not sufficient. It is only the foundation of a critique - one that will succeed only if it describes not only the Britain the Tories are building but also the better one that Labour would deliver. Not prosaically in the form of a Labour programme, but inspirationally as the Labour promise.

All criticism of the government – big and little – has to return to this foundational narrative. It should connect everything. And it is on this story that you can anchor an effective response to George Osborne. Whatever the sparklers on the day or the details in the accompanying budgetary documentation, the trajectory is set. The government know where they are going. So do informed commentators. A smart opposition should too. The only people in the dark are the voters. They feel a pinch point here, a cut there, an unease and unfairness everywhere – but they can’t sum it up in words. That is the job of the party that wants to form a government – describing in crisp, consistent and understandable terms what is happening.

There are two traps on the day. The first is narrowcasting - telling the story that pleases you and your closest supporters. In that one the buzzwords are "privatisation" and "austerity". It is the opposite of persuasion aimed, as it is, at insiders. The second is to be dazzled by the big announcements of the day. Labour has fallen down here badly recently. It was obvious on Budget Day that a rise in the minimum wage could not compensate for £12bn of tax credit cuts. The IFS and the Resolution Foundation knew that. So did any adult who could do arithmetic and understood the distributional impact of the National Minimum Wage. It could and should have been Labour that led the charge, but frontbenchers and backbenchers alike were transfixed by the apparent appropriation of the Living Wage. A spot of cynicism always comes in handy. In politics as in life, if something seems to be too good to be true then … it is too good to be true.

The devil may be in the detail, but the error is in the principle – that can be nailed on the day. Not defeated or discredited immediately, but the seeds planted.  

And, if in doubt, take the government at their word. There is no fiercer metric against which to measure the Tories than their own rhetoric. How can the party of working people cut the incomes of those who have done the right thing? How can the party who promised to protect the health service deliver a decade of the lowest ever increases in spending? How can the party of home ownership banish young people to renting? The power in holding a government to account is one wielded forensically and eloquently for it is in the gap between rhetoric and reality that ordinary people’s lives fall.

The key fact for an opposition is that it can afford to lose the day if it is able to win the argument. That is Labour’s task.