When George Osborne delivers his fifth Budget on 19 March, he will be able to reflect that he has now been Chancellor for nearly a year longer than his predecessor Alistair Darling. At one stage, it seemed unlikely that he would last so long. The “steady and sustained economic recovery” he promised in 2010 had become a double-dip recession and the economy was in danger of an unprecedented triple dip. Conservative MPs joked in private that Mr Osborne, the Tories’ chief election strategist, was a “part-time chancellor” who “wasn’t good at either of his jobs”. On the eve of the 2013 Budget, they signalled their intention to oust him if the economy failed to show signs of recovery by the spring.
A year later, Mr Osborne is a politician reborn. After avoiding a triple dip in 2013, the British economy is now the fastest-growing of any major western nation. Once mocked as “the Submarine” for his habit of disappearing at the first hint of trouble, Mr Osborne has assumed a more public role and is in the race to become the next Conservative leader.
Yet the Chancellor does not merit the flattery he attracts. As Robert Skidelsky, the leading biographer of Keynes and a cross-bench peer, says in his audit of the Chancellor’s record, starting on page 22, GDP is still 1.4 per cent below its 2008 peak and 14 per cent below where it would have been if the recession had not struck. The US economy, by contrast, is 5 per cent larger than before the crisis. To this, the Conservative riposte is that the UK suffered a bigger crash than any other major country, with output falling by 7.2 per cent from peak to trough. But as the former US treasury secretary Larry Summers told Mr Osborne at the recent World Economic Forum in Davos, “The deeper the valley you are in, the more rapidly you are able to grow.”
In 2010, a genuine recovery was under way, with the economy growing 2.4 per cent in the 12 months to the third quarter, but premature austerity introduced by the new coalition government, in the form of the increase in VAT and the sharp cut in infrastructure spending, ensured that it was quickly choked off. To meet the Office for Budget Responsibility’s original 2010 forecasts, the economy would need to grow by 1.6 per cent each quarter between now and the election.
Mr Osborne has been the beneficiary of low expectations. Before the post-2010 downturn, annual growth of 1.9 per cent would have been judged a failure, and rightly so. However, he should not be blamed for all of Britain’s economic problems. The continued fragility of the banking sector, the rise in global commodity prices and the eurozone recession have all constrained growth. He also inherited a hugely unbalanced economy from Labour. However, it is precisely for these reasons that wise minds counselled the Chancellor against dogma and austerity.
To the extent that there is a recovery, it is yet again an unbalanced one of the kind the coalition government promised to avoid in 2010. Growth remains reliant on debt-led consumption and house-price inflation, rather than exports and investment (which is a remarkable 20 per cent below its pre-crisis peak). The result is that productivity and wages have slumped, with the average worker £1,600 worse off in real terms than in 2010. Rather than taking the opportunity to invest in housebuilding and other infrastructure projects when interest rates were at historic lows, Mr Osborne relied on quantitative easing and government schemes such as Help to Buy to revive growth, leaving the economy even more reliant on short-term finance and the quick fix of cheap money.
Even judging by the flawed metrics he adopted in 2010, the Chancellor has disappointed. Britain has lost its AAA credit rating, for what it is worth, and borrowing is forecast to be £51bn higher this year (£111bn) than promised in his first Budget. Having originally vowed to eliminate the so-called structural deficit by 2014-2015, he has been forced to extend this pledge by three years to 2017-2018.
The Chancellor and Prime Minister speak ambitiously of equipping Britain for “the global race” but they offer little largeness of vision beyond the eventual achievement of an economically pointless budget surplus.
The UK is in need of public investment to rebalance the economy and to narrow regional disparities. Until this happens, Britain will not have a recovery worthy of the name.