What Osborne won't admit: growth has increased because of slower cuts

The Chancellor's claim that "the pace of fiscal consolidation has not changed" is not supported by any of the available data.

Many others – perhaps Fraser Nelson does it best – have poked fun at the most Panglossian elements of the Chancellor’s speech on Monday. But I’d like here to address the substantive arguments he makes about what the path of the UK economy over recent years says about the impact of fiscal policy on growth.

The Chancellor doesn’t deny that growth has been much weaker than forecast, although it’s worth repeating the scale of this underperformance. In June 2010, the Office of Budget Responsibility predicted that by now the economy would be about 7 per cent larger, driven by a sharp rise in business investment and exports, while the deficit would have fallen by two-thirds. What has actually happened? In fact, GDP has grown at less than a third of that rate, business investment has fallen, and the path of deficit reduction bears no resemblance at all to the original projections (which is, as I'll elaborate below, a good thing).    

But, the Chancellor argues, this underperformance has nothing to do with fiscal policy:

the composition and timing of the slowdown in GDP growth relative to forecast is better explained by external inflation shocks, the eurozone crisis and the ongoing impact of the financial crisis on financial conditions. 

The Chancellor claimed his analysis was supported by many "independent economists" - although, oddly, he failed to mention the IMF, which has been the most prominent independent organisation to argue the contrary. Of course, the IMF and those of us who thought the fiscal consolidation plan was too aggressive never denied that these other factors played a par (and that their reversal will indeed help boost recovery).  As I put it here:

it now seems clear that the negative impact of ‘Plan A’ on growth has been significantly greater than expected, although matters have also been exacerbated by even more damaging policy mistakes in the eurozone, as well as high commodity prices.

Coincidentally, on the same day the Chancellor made his speech, other "independent economists" (Oscar Jorda and Alan Taylor) published a widely reported paper suggesting precisely the opposite (an earlier, non-technical summary is here). They find, as shown in their chart:

Without austerity, UK real output would now be steadily climbing above its 2007 peak, rather than being stuck 2% below. 

And they conclude:

Fiscal contraction prolongs the pain when the state of the economy is weak, much less so when the economy is strong....Keynes is still right, after all: “The boom, not the slump, is the right time for austerity at the Treasury.

However, despite the weight of academic research, the Chancellor goes on to claim that current developments support his interpretation of recent past history:

Proponents of the ‘fiscalist’ story cannot explain why the UK recovery has strengthened rapidly over the last six months. The pace of fiscal consolidation has not changed, government spending cuts have continued as planned, and yet growth has accelerated and many of the leading economic indicators show activity rising faster than at any time since the 1990s.

But this is an obvious sleight of hand.  The claim that "the pace of fiscal consolidation has not changed" is not supported by any of the available data. Here is the OBR’s own chart. As Robert Chote, the OBR’s Chair puts it, "deficit reduction appears to have stalled".

Indeed, the OECD, the government’s favourite of the international forecasting bodies (since, as noted above, the IMF shares my interpretation of the impact of fiscal consolidation on growth) goes even further. According to its calculations, the UK is actually expanding its structural deficit in 2013. In other words, the government is engaging in fiscal stimulus.  Personally I find this implausible - the OBR's estimate is that the structural deficit was broadly flat in 2012-13 - but the data hardly seem consistent with the Chancellor's view.

How did this happen? As I explained earlier this year:

So what's going on? As I noted earlier, most of the deficit reduction has come from cutting public sector net investment (spending on schools, roads, hospitals, etc) roughly in half. Pretty much all the rest came from tax increases (note that the investment cuts and tax increases were both, to a significant extent, policies inherited from the previous government). And we can see when it happened - between 2009-10 and 2011-12.

But these sources of deficit reduction stopped in 2011-12, because the government belatedly realised that cutting investment was a major mistake and that the economic imperative was actually to do precisely the opposite (not that there was much investment left to cut); and it stopped putting up taxes overall. So we can see also what's happened since - with the impact of the weak economy on tax receipts reducing revenues, the deficit has been flat and is projected to stay flat.

So the Chancellor’s argument is simply a non sequitur, supported neither by the research evidence nor the data. 

As I wrote here at the turn of the year, we should give the government credit for not digging us further into a hole by trying to stick to its original plans. Fiscal consolidation has slowed, at least for the time being, and as a consequence it is playing a considerably smaller role in driving economic developments than it did two years ago. Meanwhile, the eurozone and global environment is, at least at present, considerably more favourable. Poor policy and bad luck has delayed recovery, relative to NIESR's original forecasts and everyone else's, but has not removed the ability of the UK economy to generate growth. 

So it is perfectly reasonable to ask economic forecasters (including both the OBR and us at NIESR) why we appear so far to have underpredicted the strength of the current upturn. But claiming that this improvement vindicates the earlier damaging mistake the government made by going for front-loaded fiscal consolidation in 2010 just doesn’t make any economic sense. 

George Osborne makes a speech on the economy at a construction site in east London. Photograph: Getty Images.

Jonathan Portes is director of the National Institute of Economic and Social Research and former chief economist at the Cabinet Office.

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Meet the ex-footballers launching a support network for victims of sexual abuse in the sport

The Offside Trust is set up after hundreds have come forward, and 55 football clubs have been linked to allegations of abuse.

In a sumptuous room inside a luxurious hotel in the centre of Manchester, the country’s media anxiously await the arrival of a man whose story has rocked English football to its very foundations.

Since Andy Woodward went public with allegations that he experienced sexual abuse as a young footballer in the 1980s, the nation’s favourite sport has been left in crisis and, in the process, forced to do some soul-searching.

Following Woodward’s story, a number of his peers have also come forward with tales of unimaginable suffering.

This week, some of those men have joined together to launch the Offside Trust, an independently-run body aiming to provide support to players and the families of those who have suffered sexual abuse in football and other sports.

According to Woodward and his colleagues, the Trust won’t just be a way to help those who have been abused while playing the sport they love, but also represents a direct response to institutions that, in their view, have failed to protect them.

“A number of people who have come forward have indicated that they don’t have trust in the establishment,” says Edward Smethurst from Prosperity Law LLP, a Manchester law firm in charge of administering the trust.

“We are not here to criticise any of the establishment bodies, but we do have to respect the sensibilities and the opinions of the victims.” 

Wearing a crisp blue suit, hair combed neatly into place, Woodward’s composed demeanour masks the tremendous emotional stress he has revealed to the world he had to endure for decades, in silence until now.

Hearing him retell his story time and again, it is evident that, although exhausting, this process of letting the world know the horrors he says he experienced as a boy is both cathartic and a way to help others.

“I’m totally overwhelmed, the emotions are just unreal,” he says. “I can’t believe how many [people] have come forward, but I just encourage more and more [people] to have that strength and have that belief to do it.”

Sitting beside Woodward is Steve Walters – a former football prodigy whose career was cut short due to a blood disorder – who says he fell prey to the same serial child molester as Woodard. The person in question can no longer be named for legal reasons.

Walters tells me how his story has affected every aspect of his life. “It has ruined marriages, the relationship with my children, flashbacks, lack of sleep, panic attacks,” he tells me.

Walters speaks of “injustices” done to him for the past 20 years by those in charge of the sport he once loved. But he also knows how he would like to start turning the page and move on with his life.

“An apology [from Crewe Football Club] would be a start,” he says. “For them to not even put out one small apology, it does hurt.”

Since Woodward’s allegations were first made public on 16 November, 18 police forces across the country are now investigating claims of historic sexual abuse in football.

Every player I speak to at the Offside Trust launch in Manchester describes this as an epidemic, and that, in modern Britain, some children are still at the mercy of paedophiles operating within the sport. 

“I do believe it’s happening,” says Jason Dunford, who also claims to have been abused at Crewe Alexandra. “I believe it’s happening on a lower scale than when we were children, but as a father of a young boy who is around the football industry at the moment, I still have worries.”

Woodward coming forward has had worldwide implications. Walters and Dunford tell me they have been contacted by players as far-flung as South America and Australia who say they have been through the same ordeal as young footballers. The men are adamant this is not a UK problem, but a football one – wherever the game is played.

Woodward is mentally drained. Prior to the interview, he repeatedly tells me how the whirlwind of the last few weeks has affected his health. But he knows that this is his chance, perhaps the only one he’ll get, to help those like him.

“The closure will be when I feel like I’m satisfied that I have done everything I can to help as many people out there as possible,” he says. “People with children in football need protecting.” 

Felipe Araujo is a freelance journalist based in London. He writes about race, culture and sports. He covered the Rio Olympics and Paralympics on the ground for the New Statesman. He tweets @felipethejourno.