The OBR rebukes Cameron for claiming that austerity has not hit growth

"Tax increases and spending cuts reduce economic growth", Office for Budget Responsibility head tells Cameron in letter.

In his "there is no alternative" speech on the economy yesterday, David Cameron confidently declared that the Office for Budget Responsibility had shown that the coalition's austerity measures have not harmed growth.

As the independent Office for Budget Responsibility has made clear…

…growth has been depressed by the financial crisis…

…the problems in the Eurozone…

…and a 60 per cent rise in oil prices between August 2010 and April 2011.

They are absolutely clear that the deficit reduction plan is not responsible.

In fact, quite the opposite.

But it turns out that the OBR doesn't think that at all. In a notable assertion of his independence, Robert Chote, the watchdog's head, has just written to the Prime Minister correcting the record.

Chote writes:

For the avoidance of doubt, I think it is important to point out that every forecast published by the OBR since the June 2010 Budget has incorporated the widely held assumption that tax increases and spending cuts reduce economic growth in the short term.

He reminds Cameron that the OBR's multipliers assume that "every £100 of fiscal consolidation measures reduce GDP in that year by around £100 for capital spending cuts, £60 for welfare and public services, £35 for increases in the VAT rate and £30 for income tax and National Insurance increases". Fiscal consolidation is estimated to have reduced GDP by 1.4 per cent in 2011-12 alone.

Chote adds that the OBR believes that weaker-than-expected growth is most likely due to higher inflation, deteriorating export markets and the recession in the eurozone. But he emphasises that this doesn't mean Cameron can claim that austerity has not hit growth, let alone that it has had "the opposite" effect (does he still believe in expansionary fiscal contraction?)

The OBR's original forecasts were premised on the assumption that spending cuts and tax rises depress output, even if subsequent downgrades have been largely attributed to other factors. As Chote puts it, "we believe that fiscal consolidation measures have reduced economic growth over the past couple of years, but we are not yet persuaded that they have done so by more than the multipliers we use would suggest."

In other words, Cameron was wrong. And the independent (no scare quotes required) OBR deserves credit for pointing out as much. But if, in addition to making growth forecasts, the OBR is going to start fact-checking Cameron's speeches, it will have its work cut out.

Just a month ago, as Staggers readers will recall, the PM was rebuked by the UK Statistics Authority for falsely claiming in a Conservative Party political broadcast that the coalition "was paying down Britain’s debts".

You can read Chote's letter in full below.

Letter From Robert Chote to Prime Minister

David Cameron delivers his speech on the economy during a visit to precision grinding engineers Cinetic Landis Ltd on March 7, 2013 in Keighley. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

European People's Party via Creative Commons
Show Hide image

Ansbach puts Europe's bravest politician under pressure

Angela Merkel must respond to a series of tragedies and criticisms of her refugee policy. 

Angela Merkel, the Chancellor of Germany, is supposed to be on holiday. Two separate attacks have put an end to that. The first, a mass shooting in Munich, was at first widely believed to be a terrorist attack, but later turned out to be the actions of a loner obsessed with US high school shootings. The second, where a man blew himself up in the town of Ansbach, caused less physical damage - three were seriously injured, but none killed. Nevertheless, this event may prove to affect even more people's lives. Because that man had come to Germany claiming to be a Syrian refugee. 

The attack came hours after a Syrian refugee murdered a pregnant Polish woman, a co-woker in a snack bar, in Reutlingen. All eyes will now be on Merkel who, more than any other European politician, is held responsible for Syrian refugees in Europe.

In 2015, when other European states were erecting barriers to keep out the million migrants and refugees marching north, Merkel kept Germany's borders open. The country has resettled 41,899 Syrians since 2013, according to the UNHCR, of which 20,067 came on humanitarian grounds and 21,832 through private sponsorship. That is twice as much as the UK has pledged to resettle by 2020. The actual number of Syrians in Germany is far higher - 90 per cent of the 102,400 Syrians applying for EU asylum in the first quarter of 2016 were registered there. 

Merkel is the bravest of Europe's politicians. Contrary to some assertions on the right, she did not invent the refugee crisis. Five years of brutal war in Syria did that. Merkel was simply the first of the continent's most prominent leaders to stop ignoring it. If Germany had not absorbed so many refugees, they would still be in central Europe and the Balkans, and we would be seeing even more pictures of starved children in informal camps than we do today. 

Equally, the problems facing Merkel now are not hers alone. These are the problems facing all of Europe's major states, whether or not they recognise them. 

Take the failed Syrian asylum seeker of Ansbach (his application was rejected but he could not be deported back to a warzone). In Germany, his application could at least be considered, and rejected. Europe as a whole has not invested in the processing centres required to determine who is a Syrian civilian, who might be a Syrian combatant and who is simply taking advantage of the black market in Syrian passports to masquerade as a refugee. 

Secondly, there is the subject of trauma. The Munich shooter appears to have had no links to Islamic State or Syria, but his act underlines the fact you do not need a grand political narrative to inflict hurt on others. Syrians who have experienced unspeakable violence either in their homeland or en route to Europe are left psychologically damaged. That is not to suggest they will turn to violence. But it is still safer to offer such people therapy than leave them to drift around Europe, unmonitored and unsupported, as other countries seem willing to do. 

Third, there is the question of lawlessness. Syrians have been blamed for everything from the Cologne attacks in January to creeping Islamist radicalisation. But apart from the fact that these reports can turn out to be overblown (two of the 58 men arrested over Cologne were Syrians), it is unclear what the alternative would be. Policies that force Syrians underground have already greatly empowered Europe's network of human traffickers and thugs.

So far, Merkel seems to be standing her ground. Her home affairs spokesman, Stephan Mayer, told the BBC that Germany had room to improve on its asylum policy, but stressed each attack was different. 

He said: "Horrible things take place in Syria. And it is the biggest humanitarian catastrophe, so it is completely wrong to blame Angela Merkel, or her refugee policies, for these incidents." Many will do, all the same.