Leader: Chancellor, it’s not working. Here is your Plan B

Should Osborne stick obstinately to Plan A, the country will pay in the form of lower growth.

When George Osborne unveiled his deficit-reduction programme he did so with near-unanimous support from the political and economic establishment. The governor of the Bank of England and the heads of the IMF, the OECD and the European Commission all agreed that there was no alternative to the Chancellor's plan to impose the biggest cuts in public spending since 1945, part of a plan to eliminate the structural deficit in just one parliament. But the consensus is turning against extreme austerity during a time of economic crisis. Mr Osborne's plan is not providing the growth and jobs that Britain needs. The latest data shows that the economy has not grown for nine months, while unemployment has risen to 2.57 million (8.1 per cent), the highest level since 1994. Worse, youth unemployment has risen to 991,000 (21.3 per cent), increasing the danger that this will be a lost generation. As a result, owing to lower tax revenues and higher welfare payments, the Chancellor has already been forced to announce an extra £44.4bn of borrowing across this parliament.

Long before the coalition government came to power, the New Statesman warned that too fast a pace of austerity would prove self-defeating. In a leader published on 29 October 2009, we noted that Mr Osborne "does not have a plan for growth. He has a plan for a lack of growth." Our economics editor, David Blanchflower, long ago demanded that the Chancellor adopt, as he put it, a "plan B". This phrase has become part of the discourse of economic woe.

This month, Mr Osborne again departed from the script by endorsing another round of quantitative easing (which even he described in 2009 as "the last resort of desperate governments") by the Bank of England. However, monetary activism alone will not be enough to prevent a prolonged slump. We need urgent fiscal activism.

Consequently, for this issue, we asked nine of the world's leading economists and economic historians, including a Nobel laureate and three former members of the Bank of England's Monetary Policy Committee, to suggest one new policy each to stimulate growth (see pages 22-30). Christopher Pissarides, who was awarded the 2010 Nobel Prize in Economics, calls for a cut in VAT from 20 per cent back to 17.5 per cent. Such a move would boost consumer confidence, lower inflation, protect retail jobs and increase real wages.

At a time when Britain can borrow at historically low levels, the government should provide further fiscal stimulus. As Professor Pissarides argues, "a small rise in gilt interest rates is a small price to pay for more jobs". Elsewhere, Jeffrey Sachs, the world's leading development economist, argues for the introduction of a financial transaction tax to reduce destabilising speculation. Robert Skidelsky, the great biographer of Keynes, calls for the creation of a national investment bank. And Jonathan Portes, director of the National Institute of Economic and Social Research, the winner of Prospect's 2011 think tank awards, urges the government to abandon its illiberal and economically defective cap on immigration.

Ahead of the Chancellor's autumn statement on 29 November, we hope that he will consider all nine proposals as he seeks to prevent a wholesale loss of confidence in the British economy. When the Bank of England announced an additional £75bn of quantitative easing, its governor, Mervyn King, remarked: "When the world changes, we change our policy response." It is time for Mr Osborne to put dogma aside and follow Mr King's example. Should he stick obstinately to Plan A, the country will pay in the form of lower growth, higher unemployment and higher borrowing.

This article first appeared in the 17 October 2011 issue of the New Statesman, This is plan B