Support 100 years of independent journalism.

7 August 2011

It’s time for Osborne to face the facts

The Chancellor's policies are in disarray; he needs to change tack -- and fast.

By David Blanchflower

The economic neanderthals are out in full force, led by Tim Montgomerie in the Telegraph. I fell about laughing when I read that he thinks that the Chancellor has been “vindicated”, just as growth in the UK has spluttered to a halt and unemployment is expected to rise, family incomes and house prices are falling and the Bank of England’s Monetary Policy Committee (MPC) is set to downgrade its growth forecast once again this week. He must be kidding, surely? Exactly the opposite is the case — George Osborne’s policies are in total disarray and are a disaster. The Tories’ only option is to spin, as they have no policies to deal with the coming financial crisis that will inevitably envelope our banks again. They have cut too far and too fast. U-turn number 32 is on its way. Just wait.

This, amazingly, is what Montgomerie says:

The biggest political losers from the global economic crisis are Labour’s two Eds. Balls and Miliband have constantly parroted the line that the coalition was cutting too far, too fast, and that George Osborne had exaggerated the danger of the deficit that Labour left behind. Crazily, they wanted to put petrol on the fire and increase this country’s borrowing in the middle of a global debt crisis, arguing that Britain was too big to face a Greek-style humiliation. Now, the Chancellor has been vindicated: Labour’s argument is in tatters after Standard and Poor’s downgraded the biggest economy of them all — America. Italy and Spain are paying high interest rates to borrow from international lenders because they don’t have credible plans to balance their books. In sharp contrast, the coalition has steered Britain into a safe harbour during this storm: hence why we are enjoying historically low interest rates on the international money markets.

What is he talking about? All of his claims are contradicted by the facts. The UK economy has grown 0.2 per cent over the past nine months, while the the US grew by 1 per cent over the same period. US interest rates are currently below those of the UK. In any case, as Jonathan Portes has pointed out, just like the UK’s they have fallen recently as markets expect both US and UK central banks to have to keep rates low for even longer, because the fiscal authorities are cutting too deep and too fast. Plus, Spain and Italy are in trouble because they are stuck in a monetary union and cannot depreciate their currency; they also have a central bank that is pursuing a policy that operates against the country’s best interests. The US has been downgraded because it is cutting too fast and too deep as the economy starts to slow. If the UK is a “safe harbour from the storm”, how come shares in Lloyds and RBS fell last week by 20 per cent and in Barclays by 17 per cent?

Select and enter your email address Quick and essential guide to domestic and global politics from the New Statesman's politics team. A weekly newsletter helping you fit together the pieces of the global economic slowdown. The New Statesman’s global affairs newsletter, every Monday and Friday. The best of the New Statesman, delivered to your inbox every weekday morning. The New Statesman’s weekly environment email on the politics, business and culture of the climate and nature crises - in your inbox every Thursday. Our weekly culture newsletter – from books and art to pop culture and memes – sent every Friday. A weekly round-up of some of the best articles featured in the most recent issue of the New Statesman, sent each Saturday. A newsletter showcasing the finest writing from the ideas section and the NS archive, covering political ideas, philosophy, criticism and intellectual history - sent every Wednesday. Sign up to receive information regarding NS events, subscription offers & product updates.
  • Administration / Office
  • Arts and Culture
  • Board Member
  • Business / Corporate Services
  • Client / Customer Services
  • Communications
  • Construction, Works, Engineering
  • Education, Curriculum and Teaching
  • Environment, Conservation and NRM
  • Facility / Grounds Management and Maintenance
  • Finance Management
  • Health - Medical and Nursing Management
  • HR, Training and Organisational Development
  • Information and Communications Technology
  • Information Services, Statistics, Records, Archives
  • Infrastructure Management - Transport, Utilities
  • Legal Officers and Practitioners
  • Librarians and Library Management
  • Management
  • Marketing
  • OH&S, Risk Management
  • Operations Management
  • Planning, Policy, Strategy
  • Printing, Design, Publishing, Web
  • Projects, Programs and Advisors
  • Property, Assets and Fleet Management
  • Public Relations and Media
  • Purchasing and Procurement
  • Quality Management
  • Science and Technical Research and Development
  • Security and Law Enforcement
  • Service Delivery
  • Sport and Recreation
  • Travel, Accommodation, Tourism
  • Wellbeing, Community / Social Services
I consent to New Statesman Media Group collecting my details provided via this form in accordance with the Privacy Policy

I haven’t heard such a steaming pile of ordure for ages. Absurdly, Osborne, Cameron and Clegg talked the economy down and consumer confidence has collapsed; employment is set to fall as the consumer is running scared. I am not quite sure how Montgomerie is going to wriggle out of the argument that simply talking of austerity has taken us back to the brink of a second great depression even before most of the cuts have been implemented. Montgomerie goes on to argue for tax cuts, which would amount to a U-turn and would indicate that Osborne’s strategy has failed miserably. It is indeed exactly what Balls and many others (including yours truly) have been calling for. Now is not the time to slash and burn and this is becoming more obvious by the hour.

Osborne needs to get on a plane and fly back to the UK and get on his knees and ask the nation’s forgiveness for his incompetence. And then quit. Osborne has almost singlehandedly taken us back to the edge of a financial cataclysm by closing his eyes and pretending that he knows what he is doing, when he doesn’t. So the pressure is now on the MPC to step in and boost the economy with more quantitative easing, as it will have to pump money into the economy to compensate for the mistakes being made at the Treasury. I have zero confidence that when the crisis hits Britain, as it surely will, Osborne will have any clue what to do about it. I guess he could always call Montgomerie for advice — Colin, that is, whom I have always admired as a golfer and who surely knows much more about economics than Tim, who continues to trot out laughable Tory spin. Let’s watch the data over the next couple of weeks to see whether Timbo is right that the Chancellor has been “vindicated”. But I don’t think he will be.