Osborne's economic strategy remains self-defeating

The Chancellor is wrong to fund £5bn of extra capital spending by squeezing public services.

George Osborne's decision to increase capital spending by £5bn (to be announced in tomorrow's Autumn Statement) is a belated admission that, in times of stagnation, the state must intervene to stimulate growth. The delusion that the coalition's spending cuts would increase consumer confidence and produce a self-sustaining private-sector-led recovery has been abandoned after Osborne's "expansionary fiscal contraction" turned out to be, well, contractionary. Whisper it, but Keynesianism is back. The £5bn will be spent on "shovel-ready projects", including 100 new free schools and academies, roads, and science and technology programmes.

But rather than taking advantage of the UK's historically low bond yields to borrow for growth (as the IMF and the CBI, among others, have urged the government to do), Osborne will fund the move by squeezing current spending even harder. All government departments, except health, education and international development, will be forced to reduce their budgets by an extra one per cent in 2013-14 and a further two per cent in 2014/15. By reducing demand and leading to thousands of extra job losses, the new cuts will limit the effectiveness of the £5bn stimulus, which, in itself, is inadequate. The FT's economics editor Chris Giles suggests that "on generous assumptions it might increase growth in one year by 0.1 per cent."

Though Osborne will claim otherwise tomorrow, this isn't what's needed to make a real difference at this stage.

George Osborne during a visit to the offices of HM Revenue & Customs. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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