If Britain’s economic plan is “working” why are British people worse off than they were when the Coalition took office? Living standards continue to fall in the slowest recovery in 100 years and growth is half what the Office for Budget Responsibility forecast in 2010.
Net lending to business is down £100bn and the UK has lost its AAA credit rating. The claim Osborne made in 2010 that the budget would be in balance by the end of this parliament is in tatters and now he plans to do it in 2019. According to the OBR Britain’s economy will grow 1.4 per cent this year and 2.4 per cent next year, significantly higher than the March forecasts of 0.6 per cent for 2013 and 1.8 per cent for 2014 but well below what was forecast in June 2010 of 2.9 per cent and 2.7 per cent.
I am especially pleased that the Chancellor has announced the removal of national insurance contributions for youngsters under the age of 21, that I have been pushing for over the past three years. Even Liam Fox and I agreed on this one.
But this should have been done ages ago given that the youth unemployment rate has jumped since the Government took office. In May 2010, the unemployment rate for 16- to 17-year-olds was 33.5 per cent and is now 36.3 per cent and in the case of 18- to 24-year-olds was 17.8 per cent in 2010, up to 19.4 per cent today. The number of apprenticeships for those under 19 has been falling not rising. Too little too late.
The starting point for the Chancellor’s statement was that the UK economy has grown 1.9 per cent over the last three quarters. That is exactly the same amount of growth achieved from Q4-2009 to Q2-2010 when the Coalition took office. Indeed growth in Q2-2010 was 1 per cent compared with 0.8 per cent in the latest quarter. GDP per capita in the latest data is below what it was when this Government took office and 7 per cent below its level at the start of the recession.
Those of us who opposed austerity, including the shadow Chancellor Ed Balls, who has been vindicated, never did say the UK economy would never grow, just that the level of output of the economy would be lower than it should have been. According to OBR data GDP is about 5 per cent lower than it should have been because of Osborne’s austerity, exactly what Keynes predicted. This is something Robert Skidelsky and I made clear in a column in January 2011.
“Keynes never denied that economies would recover from depressions without help from governments. What he argued was that countries would not regain full employment without an exogenous injection of demand. Without it, the business cycle would go on, but at a lower level of activity.” And so it has turned out.
David Blanchflower is a former member of the Bank of England’s Monetary Policy Committee