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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Tory Brexiter Daniel Hannan: Leave campaign never promised "radical decline" in immigration

The voters might not agree...

BBC Newsnight on Twitter

It was the Leave campaign's pledge to reduce EU immigration that won it the referendum. But Daniel Hannan struck a rather different tone on last night's Newsnight. "It means free movement of labour," the Conservative MEP said of the post-Brexit model he envisaged. An exasperated Evan Davis replied: “I’m sorry we’ve just been through three months of agony on the issue of immigration. The public have been led to believe that what they have voted for is an end to free movement." 

Hannan protested that EU migrants would lose "legal entitlements to live in other countries, to vote in other countries and to claim welfare and to have the same university tuition". But Davis wasn't backing down. "Why didn't you say this in the campaign? Why didn't you say in the campaign that you were wanting a scheme where we have free movement of labour? Come on, that's completely at odds with what the public think they have just voted for." 

Hannan concluded: "We never said there was going to be some radical decline ... we want a measure of control". Your Mole suspects many voters assumed otherwise. If immigration is barely changed, Hannan and others will soon be burned by the very fires they stoked. 

I'm a mole, innit.