Blow for Osborne as economy grows by just 0.2 per cent

The Chancellor hails "positive news" but he's missed his growth target again.

The news is out: the economy grew by just 0.2 per cent in the second quarter of this year. George Osborne will be relieved that it's not a negative figure, as some predicted, but it's still unambiguously bad news for the Chancellor. He needed growth of at least 0.8 per cent to stay on track to meet the OBR's growth forecast for this year (1.7 per cent - a figure that has been downgraded three times) and he's fallen well short. With this in mind, it is risible of him to claim that growth of 0.2 per cent is "positive news".

The Office for National Statistics said that "special factors", including the royal wedding, the Japanese tsunami and the unusually warm weather knocked around 0.5 per cent off GDP, which Osborne will cite in his defence. But the reality is that the economy has now grown by just 0.2 per cent over the last nine months, compared with growth of 2.1 per cent over the previous nine (see graph). As a result, the OBR will now be forced to cut its growth forecast for the fourth time since it was founded last May. Against this backdrop, it's hardly surprising, as the Telegraph reports, that "Downing Street aides [have] become increasingly impatient with a lack of growth".


We can expect Osborne and his allies to blame all manner of things, from the royal wedding (which we were originally told would "boost the economy"), to the eurozone crisis, to global instability. They're right - up to a point - but that doesn't explain why Britain has performed so much worse than many of its competitors, all of whom face the same "global challenges". Germany grew more in Q1 (1.5 per cent) than the UK will in all of this year.

The truth is that Osborne's policies have exacerbated, rather than diminished, Britain's economic problems. His mythical claim that Britain was "on the brink of bankruptcy" had a chilling effect on consumer confidence as families stopped spending in anticipation of the cuts and tax rises to come. His reckless decision to raise VAT to 20 per cent tightened the squeeze and automatically added 1.5 per cent to inflation.

So, to quote Lenin, what is to be done? There is, as I've argued before, a strong a case for a temporary cut in VAT. A VAT cut would boost consumer spending, lower inflation (thus reducing the risk of a premature rate rise), protect retail jobs and increase real wages. When Alistair Darling reduced the tax to 15 per cent during the financial crisis, consumers spent £9bn more than they otherwise would have done. A VAT cut today would be a similarly effective fiscal stimulus. But Osborne and David Cameron have already ruled out such a course of action.

That leaves Vince Cable's call for a "more imaginative" form of quantitative easing - the closest the government has to a plan B. But even another round of QE - the effectiveness of which is doubted by many economists - won't be enough to kick-start the economy. Osborne might have avoided a double dip but an anaemic recovery now looks inevitable.

George Eaton is political editor of the New Statesman.

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The Fire Brigades Union reaffiliates to Labour - what does it mean?

Any union rejoining Labour will be welcomed by most in the party - but the impact on the party's internal politics will be smaller than you think.

The Fire Brigades Union (FBU) has voted to reaffiliate to the Labour party, in what is seen as a boost to Jeremy Corbyn. What does it mean for Labour’s internal politics?

Firstly, technically, the FBU has never affliated before as they are notionally part of the civil service - however, following the firefighters' strike in 2004, they decisively broke with Labour.

The main impact will be felt on the floor of Labour party conference. Although the FBU’s membership – at around 38,000 – is too small to have a material effect on the outcome of votes themselves, it will change the tenor of the motions put before party conference.

The FBU’s leadership is not only to the left of most unions in the Trades Union Congress (TUC), it is more inclined to bring motions relating to foreign affairs than other unions with similar politics (it is more internationalist in focus than, say, the PCS, another union that may affiliate due to Corbyn’s leadership). Motions on Israel/Palestine, the nuclear deterrent, and other issues, will find more support from FBU delegates than it has from other affiliated trade unions.

In terms of the balance of power between the affiliated unions themselves, the FBU’s re-entry into Labour politics is unlikely to be much of a gamechanger. Trade union positions, elected by trade union delegates at conference, are unlikely to be moved leftwards by the reaffiliation of the FBU. Unite, the GMB, Unison and Usdaw are all large enough to all-but-guarantee themselves a seat around the NEC. Community, a small centrist union, has already lost its place on the NEC in favour of the bakers’ union, which is more aligned to Tom Watson than Jeremy Corbyn.

Matt Wrack, the FBU’s General Secretary, will be a genuine ally to Corbyn and John McDonnell. Len McCluskey and Dave Prentis were both bounced into endorsing Corbyn by their executives and did so less than wholeheartedly. Tim Roache, the newly-elected General Secretary of the GMB, has publicly supported Corbyn but is seen as a more moderate voice at the TUC. Only Dave Ward of the Communication Workers’ Union, who lent staff and resources to both Corbyn’s campaign team and to the parliamentary staff of Corbyn and McDonnell, is truly on side.

The impact of reaffiliation may be felt more keenly in local parties. The FBU’s membership looks small in real terms compared Unite and Unison have memberships of over a million, while the GMB and Usdaw are around the half-a-million mark, but is much more impressive when you consider that there are just 48,000 firefighters in Britain. This may make them more likely to participate in internal elections than other affiliated trade unionists, just 60,000 of whom voted in the Labour leadership election in 2015. However, it is worth noting that it is statistically unlikely most firefighters are Corbynites - those that are will mostly have already joined themselves. The affiliation, while a morale boost for many in the Labour party, is unlikely to prove as significant to the direction of the party as the outcome of Unison’s general secretary election or the struggle for power at the top of Unite in 2018. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.