The Staggers

The New Statesman’s rolling politics blog

Cameron and Clegg have no plan to save growth

A relaunched Regional Growth Fund won't be enough to get the economy moving again.

By George Eaton Published 31 October 2011 10:32

With tomorrow's GDP figures likely to confirm that growth remains anaemic or non-existent, David Cameron and Nick Clegg are on a mission to convince the country that they are "straining every sinew" to get the economy moving again.

In an op-ed for the Financial Times, Cameron insists that the coalition is showing "complete single-mindedness on three fronts: confronting our debts; strengthening the competitiveness of our economy; and unlocking global trade." In a swipe at the likes of Vince Cable, who recently warned of the danger of a double-dip recession, he writes: "Above all, at home and abroad, we must counsel against the pessimism and fear that can become self-fulfilling prophecies in global markets". This from the man who spread the myth that Britain was on the brink of bankruptcy.

In the meantime, Clegg has announced the second tranche of the government's Regional Growth Fund, promising £950m to "safeguard or create" 325,000 jobs. The front page of today's Telegraph declares "£1bn on 100 projects to kick-start the economy". But this isn't, of course, new money. The government has ignored calls for an extra £5bn in capital spending, refusing to spend a penny more than the limits set out in the Spending Review. In fact, the Regional Growth Fund actually represents a cut in support for the regions - £1.4bn a year through the abolished Regional Development Agencies cut by two-thirds to £1.4bn over three years with the Regional Growth Fund.

So, despite our best efforts, the government has refused to adopt a plan B. Earlier this month in the New Statesman, nine of the world's leading economists, including Noble Prize winner Christopher Pissarides, Jeffrey Sachs and Robert Skidelsky, set out imaginative alternatives to ever-greater austerity (you can read their prescriptions in full here). But despite nine months without growth, the highest rate of unemployment for 17 years (2.57m) and an extra £44.5bn of borrowing, Cameron is unwilling to countenance any change to the government's deficit reduction strategy. Indeed, he persists in the delusion that low market interest rates are a reflection of economic strength, not weakness. He writes:

It is thanks to the credible plan this government has set out that today we have market interest rates of just 2.5 per cent - half what they are in Spain or Italy.

But 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 2013 (since the economy is so fragile), than it has with the supposed "strength" of the British economy. As Paul Krugman has written:

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.

Cameron adds: "Businesses, investors and families all over the country can rest assured that we will not falter. We will stay the course." To the contrary, that is precisely what they fear.

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16 comments

Mon, 2011-10-31 20:24 — PoliticalTrannie

@Stu and @swatantra nandanwar summarise what this is all about. Anyone thinking this has anything to do with a genuine effort to solve our economic woes are deluding themselves. Quote whatever numbers and statistics you like to support the con-dems failure but it won't change the basic premise- this government is playing petty ideological politics, gambling our economy away merely to prove a point.

Mon, 2011-10-31 20:50 — matthew fox (not verified)

I don't know why Stu is ignoring all the economic data that keeps getting published.

Osborne talked about the march of the makers, yet UK manufacturing has retreated, and confidence is in the toilet.

There is no leadership in unemployment being at a 17 year high.

The emergency budget of 2010 is the epicentre of the current economy stagnation.

Conservative hate Europe with a passion, but love using it as an excuse.

All we are getting is excuses from the Conservative movements, snow, extra holidays, blah blah blah.

Tue, 2011-11-01 12:55 — Mr Danger

"But the fall in rates has much much more to do with the fact that..."

The fact remains that investors think UK debt is safer than French, German, Danish, and Dutch debt. This is saving us real money.

---

"They need a massive tax hike on those CEOs"

Yes lets raise the top tax rate 10pp to 50%! Oh wait...

Tue, 2011-11-01 12:58 — Mr Danger

"The City and associated sectors are awash with money"

That would explain why bank share prices are down 50% so far this year and still falling. RBS shares are now off 95% from their 2007 peak.

Anyway what do you care about facts, I don't know why I bother.

Mon, 2011-10-31 10:57 — Flashbuck (not verified)

You only need to do two things to get the economy sorted...

1. dump the Liberal Beermats (and Labour)

2. cut taxes and let the economy grow.

Fact!

Mon, 2011-10-31 10:59 — Nilsey105

Cameron adds: "Businesses, investors and families all over the country can rest assured that we will not alter. We will stay the course."

This is what he really meant to say.

Mon, 2011-10-31 11:02 — Benedict (not verified)

You only need to do two things to get the economy sorted...

1. dump the Liberal Beermats (and Labour)

2. cut taxes and let the economy grow.

Fiction!

Mon, 2011-10-31 11:12 — swatantra nandanwar

What Dave really meant to say is that the Coalition will stick to its principles and go down fighting, and take the rest of us down with them.

Mon, 2011-10-31 11:32 — Denny (not verified)

They already did cut taxes - we have the second lowest corporate tax rates in the G8 (only Russia is lower), second lowest out of the major EU countries (Ireland is lower, and look how that's going for them), and almost half the rates in the US (and Japan). Doesn't seem to be doing us much good!

Mon, 2011-10-31 12:28 — mike cobley (not verified)

Low taxes constitute a recipe for corruption and a maniacally sociopathic investment ethos. The City and associated sectors are awash with money, most of which is being pumped into the fantasy economy, the one obsessed with speculation, mickey mouse derivatives, and governance capture. The majority of global financial activity has little to do with ordinary trade and commerce, those avenues of exchange and production which have a direct bearing on the lives of ordinary people.

But hey, sod them, just cut taxes and let the fantasy economy grow!

Mon, 2011-10-31 12:44 — Sir Michael (not verified)

They need a massive tax hike on those CEOs who are raking it in and on the profits of mega corporations. This tax revenue should then be used to repair infrastructure, which will create jobs, and boost the income of welfare recipients and people on low wages, which will help the local economies as this demographic are the least likely to save (meaning the money actually reaches the economy and doesn't sit in a vault).

I don't see any of the three mainstream parties doing this though, as they are terrified of the corporations.

Mon, 2011-10-31 12:51 — Flashbuck (not verified)

@Denny - "Doesn't seem to be doing us much good!"

Get your facts right!

"The maker of Panadol and Lucozade wants to expand in the UK following tax breaks on innovation introduced by Chancellor George Osborne."

http://bit.ly/sX7oJk

Mon, 2011-10-31 13:15 — Awake!

@ george eaton
french, spanish italian rates are higher, yet their econmies are weak as well- why is that. U say UK rates are weak citing the nobel economic prize winner Krugman, but he do remeber his policies of 20 years plus have brought us here- he NEVER saw any of the global woes in his 'model'.
And he denies why the Uk has low rates for POLITICAL reasons, he has NEVER explained why france, spain italy etc have weak economies yet HIGH rates- why is that do u think lol

Mon, 2011-10-31 13:44 — Finley Winchester

Why do we live under this delusion that economies MUST grow every year? How is this even sustainable when our planet has finite resources? (unless we invest in asteroid mining)

What is wrong with an equilibrium where we neither grow nor shrink, where we can shore up our social responsibilities to each other instead of pursuing tomorrows wealth at the cost of today's people.

The whole debate feels stale and futile.

Mon, 2011-10-31 15:11 — Stu (not verified)

Considering that 50% of our trade is with the Eurozone and the Eurozone needs a bailout from the Chinese has anyone thought that this contributes to our lack of growth? Isn't it common sense that if other countries are stagnant that will greatly affect our capability to trade and grow?

By the way, if the coalition did execute plan B then Labour would have a field day. First they would say "well done chaps, we told you so" the next minute it'll be "the coalition can't be trusted, no leadership blah blah blah" - no wonder the coalition won't step down, it's all a political game and we're in the middle of it!