The latest quarterly growth figures have just been announced and they are quite remarkable. The economy grew by 1.1 per cent in the second quarter of this year, the equivalent of annualised growth of 4.4 per cent. The figure, the highest quarterly growth for four years, is nearly double the 0.6 per cent that most economists predicted and almost four times the pace of the 0.3 per cent in the first quarter.
Predictably, both Labour and the Conservatives are claiming the figure as a vindication of their economic policies. It is Labour that has the better case. Most of the key changes in George Osborne’s austerity Budget, including the rise in VAT to 20 per cent, have yet to take effect and those dramatic 25 per cent cuts won’t be announced until the autumn spending review.
Today’s growth figure does much to strengthen the argument against Osborne’s cuts. With tax revenues buoyant, there is now no good economic reason for the Chancellor to slash the public sector in pursuit of what a New York Times editorial accurately described as a “pointless structural Budget surplus”.
By contrast, Alistair Darling can justifiably claim that the figures “vindicate everything that we did”. It was the fiscal stimulus, introduced in the teeth of Tory opposition, that prevented the economy from going into a death spiral.
Osborne may now discover that, as Gordon Brown once put, it “growth is the best antidote to debt”. He should abandon his unnecessary and dangerous VAT increase and his ideological cuts to public spending.
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