Economists slam Tory calls for cuts

The Keynesians strike back.

So, after last week's letter to the Sunday Times from 20 economists, supporting the Tory demand for the government to begin cutting spending this year, it's the turn of the Keynesians to strike back.

Today's Financial Times carries not one, but two letters from 67 economists in total, warning that early spending cuts could tip the economy back into recession and rebutting claims that the deficit is "out of control".

The second, written by Lord Skidelsky and signed by 57 others, including Joseph Stiglitz and our economics columnist, David Blanchflower, is the more significant.

Here are the key passages:

In urging a faster pace of deficit reduction to reassure the financial markets, the signatories of the Sunday Times letter implicitly accept as binding the views of the same financial markets whose mistakes precipitated the crisis in the first place!

They seek to frighten us with the present level of the deficit but mention neither the automatic reduction that will be achieved as and when growth is resumed nor the effects of growth on investor confidence. How do the letter's signatories imagine foreign creditors will react if implementing fierce spending cuts tips the economy back into recession? To ask -- as they do -- for independent appraisal of fiscal policy forecasts is sensible. But for the good of the British people -- and for fiscal sustainability -- the first priority must be to restore robust economic growth. The wealth of the nation lies in what its citizens can produce.

George Osborne's claim that the economic consensus favours the Tories has been exposed as false.

The decision to send the letter to the FT (it was originally rumoured that it would appear in this week's Sunday Times) was a canny one. It lends the letter a far greater degree of authority; and it appears in a title that also argues against the deficit hawks. The paper's leader today concludes:

Friday's letters are an embarrassment for the Tories, above all, who sought to capitalise on the first letter. They must learn -- soon -- that their desire for simple political messages is no excuse for nuance-free policy positions.

The FT is often mistakenly assumed to be a cheerleader for the free market, but it has actually endorsed Labour at every election since 1992. And it would be foolish of the Tories to count on its support this time round.

What is surprising is that this letters war has started at a time when the differences between the parties on trimming public spending have ostensibly narrowed. David Cameron has promised that a Conservative government would avoid "swingeing" cuts and Alistair Darling has insisted (against the wishes of Ed Balls) that any windfall from lower than expected unemployment must be used to reduce the deficit, not for a pre-election giveaway.

But with the economy as fragile as it is, the Tories' plan to begin cutting spending from this year remains deeply irresponsible. Any hope George Osborne had of presenting himself as a credible chancellor-in-waiting has evaporated.

Follow the New Statesman team on Twitter.

George Eaton is political editor of the New Statesman.

Photo: Getty
Show Hide image

If the cuts are necessary, where's Philip Hammond's deficit target gone?

The Chancellor ripped up his predecessor's plans and has no plan to replace them. What's going on?

Remember austerity?

I’m not talking about the cuts to public services, which are very much still ongoing. I’m talking about the economic argument advanced by the Conservatives from the financial crisis in 2007-8 up until the European referendum: that unlesss the British government got hold of its public finances and paid down its debt, the United Kingdom would be thrown into crisis as its creditors would get nervous.

That was the rationale for a programme of cuts well in excess of anything their coalition partners, the Liberal Democrats, campaigned on in the run-up to the 201 election. It was the justification for cuts to everything from English language lessons to library hours. It was the stick used to beat Labour in the 2015 election. Now it justifies cuts to payments to families that lose a parent, to mental health services and much else besides.

Which is odd, because there’s something missing from this election campaign: any timetable from the Tories about when, exactly, they intend to pay all that money back. Neither the government’s day-to-day expenditure nor its existing debt can meaningfully be said to be any closer to being brought into balance than they were in 2010.

To make matters worse, Philip Hammond has scrapped George Osborne’s timetable and plan to secure both a current account surplus and to start paying off Britain’s debts. He has said he will bring forward his own targets, but thus far, none have been forthcoming.

Which is odd, because if the nervousness of Britain’s creditors is really something to worry about, their causes for worry have surely increased since 2015, not decreased. Since then, the country has gone from a byword for political stability to shocking the world with its vote to leave the European Union. The value of its currency has plummetted. Its main opposition party is led by a man who, according to the government at least, is a dangerous leftist, and, more to the point, a dangerous leftist that the government insists is on the brink of taking power thanks to the SNP. Surely the need for a clear timetable from the only party offering “strong and stable” government is greater than ever?

And yet: the government has no serious plan to close the deficit and seems more likely to add further spending commitments, in the shape of new grammar schools, and the possible continuation of the triple lock on pensions.  There seems to be no great clamour for Philip Hammond to lay out his plans to get the deficit under control.

What gives?

Could it all, possibly, have been a con to advance the cause of shrinking the state?

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

0800 7318496