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

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.