David Blanchflower: Yet more nails in Osborne's economic coffin

Economic Outlook: The Coalition bet the 2015 election on their economic policy working... all else was secondary

For economic commentators like me, sad to say, this is the crisis that keeps on giving. For most people it is the crisis that keeps on hurting. The last week or so suggests to me that we are now at a turning point.

The Government's economic strategy is in tatters and our blundering part-time Chancellor seems to have no idea what to do. Indeed, there is now talk that the much-hallowed AAA credit rating is now seriously in doubt because of his incompetence.

In a research note M&G's Jim Leaviss has argued that the rating looks "increasingly vulnerable ... because of deterioration, both in economic growth and on the fiscal side". This would be a further nail in Osborne's economic coffin.

U-turn follows U-turn – pasties, charity donations, church renovations, caravans and now fuel. Sending out the junior minister Chloe Smith, who had clearly been instructed not even to admit when the volte face had been decided, to be eaten up by Jeremy Paxman on Newsnight was an act of cowardice on the part of George Osborne, who increasingly seems to be hiding from the press.

Plus Slasher still hasn't explained how this tax cut of £500m is to be funded. It makes perfect sense to me to put a half-billion-pound stimulus into the UK economy, but makes no sense in the context of Osborne's loopy deficit reduction plan.

The inference that should be drawn from the fact that the stimulus seems to be unfunded is, of course, that the Coalition's fiscal Plan A is dead and buried. Good riddance. And postponing the 3p tax rise alongside rapidly falling oil and commodity prices further improves the near-term inflation outlook.

Data releases continue to come in thick and fast confirming that the economy is going nowhere. As is clear from the above chart, consumer confidence as well as respondents' views on their financial situation are showing no sign of recovery. Another poor set of figures on government borrowing in the first two months of the fiscal year showed they were 15 per cent higher than a year ago, reflecting both high spending growth (central government current spending rose by 7.9 per cent year on year) and weak tax receipts growth of 1.6 per cent.

The latest revisions to GDP out last week indicated that the 08-09 recession was not as deep as had initially been believed, which is what the Monetary Policy Committee had been saying, so power to them for that. This is illustrated in the other chart above. But recovery since then has been slower and more prolonged. The ONS confirmed that output in the first quarter fell by 0.3 per cent, but the extent of the decline in the final quarter of 2011 was revised down from -0.3 per cent to -0.4 per cent, confirming we are in an even deeper double-dip recession than was previously thought. The recession deniers have gone quiet again.

Not even half of the output lost since the last recession has been restored under the Coalition's disastrous and reckless economic policies. I fully expect output in the second quarter to also be negative.

The big question, as panic has gripped both Downing Street and Threadneedle Street, is: what now? Mervyn King last week made clear that the economic situation had worsened sharply over the last six weeks. The Coalition bet the 2015 election on their economic policy working; it was the centrepiece of their agreement. All else was in second place. It was entirely predictable that the economic strategy would end in tears. Once that happened the illusion of competence would inevitably crumble, as it has. Very quickly Osborne has turned from being economic guru to goat.

The problem is that it is likely too late for them to do anything to rescue the economy in time for the 2015 election, and the Liberal Democrats are already toast. It will take two years at least for any growth strategy to have any effect. Firms are still not getting enough credit and attempts to clamp down on the banks after the Barclays Libor debacle will only restrict lending further. Calls by David Laws and others for even deeper spending cuts are ridiculous.

Last week the Nobel laureate Paul Krugman and Lord Richard Layard launched a Manifesto for Economic Sense*. This sets out realistic and sensible alternatives to Osborne-style austerity. Within two days over 4,000 people, mainly economists, had signed up, including a number of distinguished names such as the Nobel laureate Chris Pissarides, John Van Reenen and Lord Skidelsky.

The argument is that Osborne, along with other European leaders, are relying on the same ideas that governed policy in the 1930s. These ideas, the manifesto argues, are "long since disproved, involve profound errors both about the causes of the crisis, its nature, and the appropriate response". Amen to that. The usual response from right-wing academics and business folk to such calls in the past has not appeared. I wonder why not? It's time to get the economy moving again. And for that to happen, Osborne must go.

*www.manifestoforeconomicsense.org

Start your day with The Independent, sign up for daily news emails
News
Nick Clegg on the campaign trail in Glasgow on Wednesday; he says education is his top priority
peopleNick Clegg remains optimistic despite dismal Lib Dem poll ratings
Arts and Entertainment
Déjà vu: David Tennant returns to familiar territory with Anna Gunn (‘Breaking Bad’)
tvReview: Something is missing in Gracepoint, and it's not just the familiar names
Arts and Entertainment
Buttoned up: Ryan Reynolds with Helen Mirren in ‘Woman in Gold’
filmFor every box-office smash in his Hollywood career, there's always been a misconceived let-down. Now he says it's time for a reboot
News
people
News
Actress Julianne Moore wins the Best Actress in a Leading Role Award for 'Still Alice' during the 87th Annual Academy Awards in Hollywood, California
people
Sport
Ross Barkley
footballPaul Scholes says it's time for the Everton playmaker to step up and seize the England No 10 shirt
News
'We will fix it': mice in the 1970s children’s programme Bagpuss
science
Life and Style
2 Karl Lagerfeld and Choupette
fashion
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

War with Isis: Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria's capital

War with Isis

Iraq declares victory in the battle for Tikrit - but militants make make ominous advances in neighbouring Syria
Scientists develop mechanical spring-loaded leg brace to improve walking

A spring in your step?

Scientists develop mechanical leg brace to help take a load off
Peter Ackroyd on Alfred Hitchcock: How London shaped the director's art and obsessions

Peter Ackroyd on Alfred Hitchcock

Ackroyd has devoted his literary career to chronicling the capital and its characters. He tells John Walsh why he chose the master of suspense as his latest subject
Ryan Reynolds interview: The actor is branching out with Nazi art-theft drama Woman in Gold

Ryan Reynolds branches out in Woman in Gold

For every box-office smash in Ryan Reynolds' Hollywood career, there's always been a misconceived let-down. It's time for a rethink and a reboot, the actor tells James Mottram
Why Robin Williams safeguarded himself against a morbid trend in advertising

Stars safeguard against morbid advertising

As film-makers and advertisers make increasing posthumous use of celebrities' images, some stars are finding new ways of ensuring that they rest in peace
The UK horticulture industry is facing a skills crisis - but Great Dixter aims to change all that

UK horticulture industry facing skills crisis

Great Dixter manor house in East Sussex is encouraging people to work in the industry by offering three scholarships a year to students, as well as generous placements
Hack Circus aims to turn the rule-abiding approach of TED talks on its head

Hack Circus: Technology, art and learning

Hack Circus aims to turn the rule-abiding approach of TED talks on its head. Rhodri Marsden meets mistress of ceremonies Leila Johnston
Sevenoaks is split over much-delayed decision on controversial grammar school annexe

Sevenoaks split over grammar school annexe

If Weald of Kent Grammar School is given the go-ahead for an annexe in leafy Sevenoaks, it will be the first selective state school to open in 50 years
10 best compact cameras

A look through the lens: 10 best compact cameras

If your smartphone won’t quite cut it, it’s time to invest in a new portable gadget
Paul Scholes column: Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now

Paul Scholes column

Ross Barkley played well against Italy but he must build on that. His time to step up and seize that England No 10 shirt is now
Why Michael Carrick is still proving an enigma for England

Why Carrick is still proving an enigma for England

Manchester United's talented midfielder has played international football for almost 14 years yet, frustratingly, has won only 32 caps, says Sam Wallace
Tracey Neville: The netball coach who is just as busy as her brothers, Gary and Phil

Tracey Neville is just as busy as her brothers, Gary and Phil

The former player on how she is finding time to coach both Manchester Thunder in the Superleague and England in this year's World Cup
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?