The UK isn't a "safe haven", it's just stagnant

Lower borrowing costs are a reflection of economic weakness, not strength.

"The difficult decisions on the deficit have made the UK a safe haven in the recent economic storm," boasted George Osborne in his response to last week's anaemic GDP figures. Today, the Chancellor and his advisers are pointing to the fact that the cost of borrowing yesterday fell to its lowest level for over 50 years as proof of that claim. A spokesman for Osborne said:

"It's a vote of confidence, one of the key aspects of our plan has been a tight fiscal policy combined with a loose monetary policy, it's the right mix for economic growth, and the need to rebalance towards exports and away from consumption."

The yield on 10-year UK gilts has fallen to 2.76, which means far lower interest repayments on government debt, potentially saving the taxpayer billions of pounds. But is this really an unequivocally good news story, as Osborne suggests? After all, it's likely that the fall in rates has much much more to do with the fact that the Bank of England base rate is unlikely to rise until 2012, than it has with the supposed "strength" of the British economy.

Here's Paul Krugman's take:

Yields in the US have, of course, plunged rather than risen. And they've plunged for the same reason UK yields have plunged: a scarily weak economy suggests that it will be years before the central bank raises rates.

In a wonderful pay-off, he adds:

It's sad, actually: the wolf is at the door, and Osborne thinks it's the confidence fairy.

Over on his blog, Faisal Islam, Channel 4's excellent economics editor, makes the same point and highlights an important experiment by the National Institute of Economic and Social Research. The NIESR points out that one would expect a fall in rates, if the result of increased economic confidence, to correlate with a rise in the FTSE-100. But after crunching the numbers, the body found no such relationship. NIESR director Jonathan Portes concluded: "Low long-term interest rates appear to reflect economic weakness and lack of market confidence in the prospects of the UK economy, not the reverse."

Over to you, Mr Osborne.

George Eaton is political editor of the New Statesman.

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The big problem for the NHS? Local government cuts

Even a U-Turn on planned cuts to the service itself will still leave the NHS under heavy pressure. 

38Degrees has uncovered a series of grisly plans for the NHS over the coming years. Among the highlights: severe cuts to frontline services at the Midland Metropolitan Hospital, including but limited to the closure of its Accident and Emergency department. Elsewhere, one of three hospitals in Leicester, Leicestershire and Rutland are to be shuttered, while there will be cuts to acute services in Suffolk and North East Essex.

These cuts come despite an additional £8bn annual cash injection into the NHS, characterised as the bare minimum needed by Simon Stevens, the head of NHS England.

The cuts are outlined in draft sustainability and transformation plans (STP) that will be approved in October before kicking off a period of wider consultation.

The problem for the NHS is twofold: although its funding remains ringfenced, healthcare inflation means that in reality, the health service requires above-inflation increases to stand still. But the second, bigger problem aren’t cuts to the NHS but to the rest of government spending, particularly local government cuts.

That has seen more pressure on hospital beds as outpatients who require further non-emergency care have nowhere to go, increasing lifestyle problems as cash-strapped councils either close or increase prices at subsidised local authority gyms, build on green space to make the best out of Britain’s booming property market, and cut other corners to manage the growing backlog of devolved cuts.

All of which means even a bigger supply of cash for the NHS than the £8bn promised at the last election – even the bonanza pledged by Vote Leave in the referendum, in fact – will still find itself disappearing down the cracks left by cuts elsewhere. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.