Osborne ducks the growth challenge

The £2.5bn increase in capital spending, funded by greater cuts elsewhere, will boost GDP by just 0.06 per cent.

Tomorrow's Budget is George Osborne's last opportunity to make a significant difference to growth before the election but we now know it's one he's not going to take. The Chancellor will announce an increase of £2.5bn in capital spending but rather than borrowing for growth, as Vince Cable, the Economist and Bloomberg have all recently urged him to, the move will be funded through greater cuts elsewhere.

Osborne told the cabinet this morning that all unprotected departments would have their budgets reduced by a further 1 per cent in 2013/14 and 2014/15. As a result, the effectiveness of the £2.5bn fund (itself a paltry amount) will be significantly reduced. Based on the OBR's fiscal multipliers (those pesky things that Robert Chote recently reminded the Prime Minister of), the increase in capital spending will boost GDP by £2.5bn but the cut in current spending will reduce it by £1.5bn. The net result, according to TUC economist Duncan Weldon, is that output will be increased by just 0.06 per cent of GDP (£1bn). A plan for growth this is not. 

Though Osborne will claim otherwise, alternatives were on offer. Cable called for the Chancellor to take advantage of Britain's historically low bond yields and borrow £14bn (1 per cent of GDP) to invest in housebuilding. As he wrote in his New Statesman essay:

One obvious question is why capital investment cannot now be greatly expanded. Pessimists say that the central government is incapable of mobilising capital investment quickly. But that is absurd: only five years ago the government was managing to build infrastructure, schools and hospitals at a level £20bn higher than last year. Businesses are forward-thinking and react to a future pipe - line of activity, regardless of how “shovel ready” it may be: we have seen that in energy investment, where the major firms need certainty over decades.

The Economist recommended an additional £28bn of infrastructure investment, with at least half funded through higher borrowing. Bloomberg argued for a minimum stimulus of $21bn, again largely deficit-financed. But Osborne persisting in the delusion that "you can't borrow more to borrow less" (in fact, as any Keynesian knows, you can) has once again chosen austerity over growth. 

Chancellor of the Exchequer George Osborne leaves number 11 Downing Street in central London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty Images
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The buck doesn't stop with Grant Shapps - and probably shouldn't stop with Lord Feldman, either

The question of "who knew what, and when?" shouldn't stop with the Conservative peer.

If Grant Shapps’ enforced resignation as a minister was intended to draw a line under the Mark Clarke affair, it has had the reverse effect. Attention is now shifting to Lord Feldman, who was joint chair during Shapps’  tenure at the top of CCHQ.  It is not just the allegations of sexual harrassment, bullying, and extortion against Mark Clarke, but the question of who knew what, and when.

Although Shapps’ resignation letter says that “the buck” stops with him, his allies are privately furious at his de facto sacking, and they are pointing the finger at Feldman. They point out that not only was Feldman the senior partner on paper, but when the rewards for the unexpected election victory were handed out, it was Feldman who was held up as the key man, while Shapps was given what they see as a relatively lowly position in the Department for International Development.  Yet Feldman is still in post while Shapps was effectively forced out by David Cameron. Once again, says one, “the PM’s mates are protected, the rest of us shafted”.

As Simon Walters reports in this morning’s Mail on Sunday, the focus is turning onto Feldman, while Paul Goodman, the editor of the influential grassroots website ConservativeHome has piled further pressure on the peer by calling for him to go.

But even Feldman’s resignation is unlikely to be the end of the matter. Although the scope of the allegations against Clarke were unknown to many, questions about his behaviour were widespread, and fears about the conduct of elections in the party’s youth wing are also longstanding. Shortly after the 2010 election, Conservative student activists told me they’d cheered when Sadiq Khan defeated Clarke in Tooting, while a group of Conservative staffers were said to be part of the “Six per cent club” – they wanted a swing big enough for a Tory majority, but too small for Clarke to win his seat. The viciousness of Conservative Future’s internal elections is sufficiently well-known, meanwhile, to be a repeated refrain among defenders of the notoriously opaque democratic process in Labour Students, with supporters of a one member one vote system asked if they would risk elections as vicious as those in their Tory equivalent.

Just as it seems unlikely that Feldman remained ignorant of allegations against Clarke if Shapps knew, it feels untenable to argue that Clarke’s defeat could be cheered by both student Conservatives and Tory staffers and the unpleasantness of the party’s internal election sufficiently well-known by its opponents, without coming across the desk of Conservative politicians above even the chair of CCHQ’s paygrade.

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.