Why today's GDP figures will give Osborne sleepless nights

The recession leaves the UK's AAA rating in even-greater danger.

In his response to today's terrible GDP figures (the economy shrunk by 0.7% in the second quarter), George Osborne wisely resisted blaming the eurozone, the weather or the Jubilee for the third successive quarter of contraction. Instead, he dwelt on the UK's "deep-rooted economic problems". Britain has many long-term problems - an economy too dependent on finance, a lack of long-term investment, and persistently high levels of youth unemployment - but the charge against Osborne is that he has made them worse, not better.

Today's figures mean that the economy is now smaller than it was at the time of the election and 4.5% below its 2008 peak. Even before the double-dip (and don't say we didn't warn you), the UK, unlike the US, Germany, France, and Canada, still hadn't recovered the lost output from the previous recession. Osborne will hope for an Olympics-led recovery in the third quarter as the lost production from the Jubilee bank holiday is made up. But recent history suggests he would be wise not to count on it.

The deepening of the recession will do little to alter the demands of Labour and Tory MPs but it will amplify them. The problem for Osborne is that the constraints of the coalition and his decision to rule out fiscal stimulus in advance mean that he can offer neither the supply-side revolution that the Tories crave nor the Keynesian boost that Labour seeks. As a result, he has invested much of his hope in greater monetary stimulus by the Bank of England. But with the UK caught in a classic liquidity trap - when consumers are so determined to save that greater availability of credit makes no difference to growth - he is profoundly wrong to do so.

At times of recession, when consumer spending is depressed and businesses are hoarding cash, the state must act as a spender of last resort and stimulate growth through temporary tax cuts and higher infrastructure spending. Yet it is precisely this option that Osborne has rejected at every turn, dismissing well-intentioned critics as "deficit deniers". Today's figures are his reward.

A further consequence of the recession is that it will be even harder, if not impossible, for Osborne to meet his golden rules on borrowing. The IMF, whose prediction of 0.2% growth this year now looks hopelessly optimistic, has already warned that he will miss his target for national debt to be falling as a percentage of GDP by 2015-16. Today's figures leave him even further away from that goal.

While Osborne's arbitrary targets are of little economic importance they are of immense political significance. Should he abandon his debt rule, the UK could lose its AAA credit rating. Standard & Poor's, for instance, has previously warned that our top rating is conditional on Osborne meeting his fiscal mandate. But why should we listen to the discredited agenices that rated Lehman Brothers and AIG as "safe investments" days before the crash? The answer is simple: we shouldn't. But this doesn't alter the fact that Osborne did. Having adopted the UK's credit rating as his metric of success (he once boasted that we were "the only major western country which has had its credit rating improve") he can hardly change tact now.

The UK's AAA credit rating is one of the few emblems of "credibility" the Chancellor has left. Its loss would be a final and possibly terminal blow to his authority.

George Osborne blamed the UK's "deep-rooted economic problems" for the continuing recession. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Garry Knight via Creative Commons
Show Hide image

Why Barack Obama was right to release Chelsea Manning

A Presidential act of mercy is good for Manning, but also for the US.

In early 2010, a young US military intelligence analyst on an army base near Baghdad slipped a Lady Gaga CD into a computer and sang along to the music. In fact, the soldier's apparently upbeat mood hid two facts. 

First, the soldier later known as Chelsea Manning was completely alienated from army culture, and the callous way she believed it treated civilians in Iraq. And second, she was quietly erasing the music on her CDs and replacing it with files holding explosive military data, which she would release to the world via Wikileaks. 

To some, Manning is a free speech hero. To others, she is a traitor. President Barack Obama’s decision to commute her 35-year sentence before leaving office has been blasted as “outrageous” by leading Republican Paul Ryan. Other Republican critics argue Obama is rewarding an act that endangered the lives of soldiers and intelligence operatives while giving ammunition to Russia. 

They have a point. Liberals banging the drum against Russia’s leak offensive during the US election cannot simultaneously argue leaks are inherently good. 

But even if you think Manning was deeply misguided in her use of Lady Gaga CDs, there are strong reasons why we should celebrate her release. 

1. She was not judged on the public interest

Manning was motivated by what she believed to be human rights abuses in Iraq, but her public interest defence has never been tested. 

The leaks were undoubtedly of public interest. As Manning said in the podcast she recorded with Amnesty International: “When we made mistakes, planning operations, innocent people died.” 

Thanks to Manning’s leak, we also know about the Vatican hiding sex abuse scandals in Ireland, plus the UK promising to protect US interests during the Chilcot Inquiry. 

In countries such as Germany, Canada and Denmark, whistle blowers in sensitive areas can use a public interest defence. In the US, however, such a defence does not exist – meaning it is impossible for Manning to legally argue her actions were in the public good. 

2. She was deemed worse than rapists and murderers

Her sentence was out of proportion to her crime. Compare her 35-year sentence to that received by William Millay, a young police officer, also in 2013. Caught in the act of trying to sell classified documents to someone he believed was a Russian intelligence officer, he was given 16 years

According to Amnesty International: “Manning’s sentence was much longer than other members of the military convicted of charges such as murder, rape and war crimes, as well as any others who were convicted of leaking classified materials to the public.”

3. Her time in jail was particularly miserable 

Manning’s conditions in jail do nothing to dispel the idea she has been treated extraordinarily harshly. When initially placed in solitary confinement, she needed permission to do anything in her cell, even walking around to exercise. 

When she requested treatment for her gender dysphoria, the military prison’s initial response was a blanket refusal – despite the fact many civilian prisons accept the idea that trans inmates are entitled to hormones. Manning has attempted suicide several times. She finally received permission to receive gender transition surgery in 2016 after a hunger strike

4. Julian Assange can stop acting like a martyr

Internationally, Manning’s continued incarceration was likely to do more harm than good. She has said she is sorry “for hurting the US”. Her worldwide following has turned her into an icon of US hypocrisy on free speech.

Then there's the fact Wikileaks said its founder Julian Assange would agree to be extradited to the US if Manning was released. Now that Manning is months away from freedom, his excuses for staying in the Equadorian London Embassy to avoid Swedish rape allegations are somewhat feebler.  

As for the President - under whose watch Manning was prosecuted - he may be leaving his office with his legacy in peril, but with one stroke of his pen, he has changed a life. Manning, now 29, could have expected to leave prison in her late 50s. Instead, she'll be free before her 30th birthday. And perhaps the Equadorian ambassador will finally get his room back. 

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.