When George Osborne delivered his autumn statement to MPs last year, he boasted: "The plan is working." But there was no room for triumphalism this year. The New Statesman consistently warned that the Chancellor's decision to embark on the most dramatic austerity programme of any major economy would lead to lower growth, higher unemployment and consequently a slower pace of deficit reduction. So it has proved.
For the fourth time since it was created, the Office for Budget Responsibility (OBR) has downgraded its growth forecasts, predicting growth of just 0.9 per cent this year and 0.7 per cent next year. As a result, Mr Osborne will be forced to borrow £158bn more than he planned last November and £19bn more than Labour was projected to. The national debt is now forecast to be higher under the coalition (78 per cent of GDP in 2014-2015) than it would have been under Labour (75 per cent). The Chancellor claimed, "Unless we deal with our debts, there will be no growth." Yet he has learned that the reverse is true. Unless you stimulate growth, you can't deal with your debts.
As so often in the past, the political and media consensus was disastrously wrong. Those who warned that too fast a pace of austerity would prove self-defeating - such as our economics editor, David Blanchflower - were denounced as "deficit deniers". However, almost every one of their predictions has come true.
The near disappearance of growth has prompted Mr Osborne to belatedly recognise the value of active government. The £5bn increase in capital spending and the £1bn youth jobs fund attest to this. While we welcome these measures, they remain profoundly inadequate, given the scale of the crisis. The Chancellor should have been far bolder and reversed his damaging VAT rise, as well as offering a tax holiday on employer and employee National Insurance contributions for anyone under the age of 25. These were just two of the pro-growth measures put forward by nine of the world's leading economists in our Plan B special in October. But Mr Osborne's political and rhetorical commitment to his plan means that he is unwilling to change course.
The Chancellor's sole remaining boast is that his deficit-reduction programme is responsible for Britain's record low bond yields and its alleged status as a "safe haven". The truth is that yields have plunged because the economy is so fragile that the Bank of England will be unable to raise interest rates until at least 2013. As the Nobel Prize-winning economist Paul Krugman has quipped: "The wolf is at the door and Osborne thinks it's the confidence fairy." After all, the major economy with the lowest bond yields is Japan, whose "lost decade" of stagnation the UK is in danger of emulating.
The OBR predicts that Britain will just avoid a double-dip recession next year (growth of -0.1 per cent in the fourth quarter and 0.1 per cent in the first) but warns that its forecasts rest on the assumption that "the euro area finds a way through its current crisis". Should this prove mistaken, the UK will almost certainly be plunged back into recession.
Yet, despite this severe risk, the country remains locked into Mr Osborne's austerity programme. As a result of his pledge to ensure that the national debt is falling as a percentage of GDP by 2015-2016, he will be forced to implement further spending cuts and tax rises if growth disappoints. In other words, at the very moment that the economy is in greatest need of stimulus, Mr Osborne will depress it.
The Chancellor's obstinacy will do little to reassure a population facing the biggest squeeze on living standards since the 1920s. Indeed, rather than offering tax cuts at the next election, Mr Osborne will now warn of further pain to come. The public-sector workers who took strike action were denounced as "militants itching for a fight" by the Education Secretary, Michael Gove - but the coalition's plan to cut 710,000 public-sector jobs (310,000 more than forecast in March) and to cap pay rises at 1 per cent shows why many sympathise with their cause. Unemployment is now forecast to reach 2.8 million (8.7 per cent) as private-sector job creation fails to compensate for public-sector job losses.
The failure of Mr Osborne's plan offers Labour an opportunity to redefine the terms of debate. While it would have borrowed more to stimulate growth, Mr Osborne is borrowing more to meet the cost of higher unemployment payments. That is the new dividing line. With the country at risk of a double-dip recession or worse, Labour must finally win the argument for an economic alternative.