George Osborne: An increasingly lonely poster boy for austerity

As the IMF distances itself from unbalanced fiscal consolidation, Osborne is running out of allies — and time

It has always been the case that the Coalition would be judged on the effectiveness of their economic policies. The salvation of the economy from the phantom menace of "becoming Greece" has, after all, been the explicitly stated reason for this Faustian pact.

It is, therefore, particularly bad news that on Wednesday a paper from the top economists at the IMF was published suggesting what many already knew: that a path of unbalanced, overly zealous austerity has a much more disastrous effect on economic growth than originally envisaged.

Olivier Blanchard, the IMF's Economic Counsellor, and its chief research economist Daniel Leigh, have confirmed, complete with scatter diagrams, what was trailed in October's World Economic Outlook report. Specifically, that a cut of government spending results in, not, as previously thought, an equivalent loss in economic output, but triple that.

Oops! We got our multipliers radically wrong, folks. Sorry, Greece. Sorry, Europe. Sorry, World. Everyone makes mistakes, you may say.

But this was not an error of scientific judgment. It was an error of ideology, policy and presentation. The Coalition was caught in a pincer movement. The rhetoric of doom and gloom was essential to defeating any opposition to a programme of ideologically driven cuts – and making everyone who argued against it look like a debt denier. Its unfortunate, but completely foreseeable side-effect however, was to scare the private sector stiff. The slack that was being created at a phenomenal rate, was not being picked up by private enterprise.

In other words, if you want someone else to take over the wheel, it really doesn't help to be running around screaming "we're all going to die". The net result has been to terrify the private sector into reserve hoarding and balance sheet retrenchment. The blame for that lays entirely with the Coalition and any other government that chose to speak the grand guignol language of fear.

"Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation", Blanchard and Leigh conclude, causing one commentator to describe the paper as "a mea culpa submerged in a deep pool of calculus and regression analysis".

Increasingly, then, our Chancellor refusing to admit error and put into effect a "plan B", cuts an isolated figure. This will only encourage the dissenting voices in Opposition – whose catchphrase "too far, too fast" could have been the title of this latest IMF paper. It will also encourage dissenting voices within his own party, who have shown open resentment for the coalition deal.

And increasingly, the hollow excuses of too much rain/too much sun/not enough sun/three flakes of snow more than expected/the Royal Jubilee/the Olympics/the dog ate my homework, will start to sound like precisely that: hollow excuses.

If, as some predict, we slide into a triple dip recession, the wider public will begin to perceive that, far from "healing", the economy is choking with an occasional gasp for breath. And George Osborne will look increasingly incompetent and devoid of allies, under a PM who showed through the Mitchell affair that loyalty in not a favourite currency.

Osborne's peculiar brand of neoliberal auto-erotic asphyxiation has limits. The safe word for stopping it is "reshuffle".

Osborne in 2009. Photograph: Getty Images

Greek-born, Alex Andreou has a background in law and economics. He runs the Sturdy Beggars Theatre Company and blogs here You can find him on twitter @sturdyalex

Photo: Getty
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Who'll win the Richmond Park by-election?

There are three known unknowns that will decide the contest. 

It’s official: Zac Goldsmith has resigned as the Conservative MP for his Richmond Park seat, and has triggered a by-election there, where he will stand as an independent candidate.

Will it be a two-way or a three-way race?

The big question is whether the contest will be a three way fight between him, the Liberal Democrat candidate Sarah Olney, and an official Conservative candidate, or if CCHQ will decide to write the thing off and not field a candidate, making it a two-horse race between Goldsmith and Olney.

There are several Tory MPs who are of the opinion that, given that latitude to disagree on Heathrow has been granted to two Cabinet ministers, Boris Johnson and Justine Greening, similar leeway should be extended to Goldsmith. It’s win-win for Downing Street not to contest it, partly because doing so would put anti-Heathrow MPs, including Johnson and Greening, in an impossible position. Theresa May isn’t averse to putting Johnson in a tricky spot, but Greening was an early supporter of her leadership bid, so her interests come fairly high up the prime ministerial radar.

But the second reason not to contest it is that Goldsmith’s chances of re-election will be put in a serious jeopardy if there is a Tory candidate in the race. Everything from the local elections in May or the Liberal mini-revival since Brexit indicates that in a three-way race, they will start as heavy favourites, and if a three-way race results in a Liberal Democrat win there will be bloodletting.

Although people are talking up Goldsmith’s personal vote, I can find little hard evidence that he has one worth writing home about. His performance in the wards of Richmond Park in the mayoral election was actually a bit worse than the overall Tory performance in London.  (Boris Johnson didn’t have a London seat so we cannot compare like-for-like, but Sadiq Khan did four points better in Tooting than he did across London and significantly outperformed his general election performance there.) He did get a big swing from Liberal to Conservative at the general election, but big swings from the Liberal candidate to the Tory were a general feature of the night, and I’m not wholly convinced, given his performance in Richmond Park in 2016, that it can be laid at Goldsmith’s door.

If he wins, it’ll be because he was the Conservative candidate, rather than through any particular affection for him personally.

But will being the Conservative candidate be enough?

Although on paper, he inherits a healthy majority. So did Robert Courts, the new MP for Witney, and he saw it fall by 19 points, with the Liberal Democrats storming from fourth to second place. Although Goldsmith could, just about, survive a fall of that magnitude, there are reasons to believe it may be worse in Richmond Park than Witney.

The first is that we already know, not just from Witney but from local council by-elections, that the Liberal Democrats can hurt the Conservatives in affluent areas that backed a Remain vote. But in Witney, they barely squeezed the Labour vote, which went down by just over two points, or the Green vote, which went down by just under two points. If in Richmond Park, they can both damage the Tory vote thanks to Brexit and squeeze Labour and the Greens, they will win.

Goldsmith's dog-whistle campaign for the London mayoralty will particularly help squeeze the Labour vote, and thanks to Witney, the Liberal Democrats have a ready-made squeeze message. (In Witney, Green and Labour votes would have been more than enough to elect Liz Leffman, the Liberal candidate.)

But their good performance in Witney and Goldsmith's mayoral result may not be enough on their own.  Ultimately, the contest will come down to the big question that will decide not just the outcome in Richmond Park but the future of the Liberal Democrats.

Have the voters forgiven the Liberal Democrats for going into coalition?

We know that Brexit can help the Liberal Democrats at the direct expense of the Conservatives. What we don’t know is if Brexit is enough to convince 6,000 Labour voters in Bath to vote tactically to get Ben Howlett out in exchange for a Lib Dem, or for 7,500 Labour voters to back a Liberal candidate in Hazel Grove to defeat William Wragg.

One of the reasons why the Liberal Democrats lost votes directly to the Tories in 2015 was fear: of uncertainty and chaos under an Ed Miliband government propped up by the SNP. That factor is less live in a by-election but has been further weakened due to the fact that Brexit – at least as far as Remain-backing Conservatives are concerned – has brought just as much uncertainty and chaos as Miliband and the SNP ever would have.

But the other reason was disgust at the Liberal Democrats for going into coalition with the Conservatives. If they can’t win over enough votes from the parties of the left, we’ll know that the party still has a way to come before we can truly speak of a Liberal revival. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.