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
Legendary blues and rock singer Joe Cocker has died of lung cancer, his management team as confirmed. He was 70
people70-year-old was most famous for 'You are So Beautiful'
News
people
Sport
Chelsea manager Jose Mourinho
footballLatest score and Twitter updates
Arts and Entertainment
David Hasselhof in Peter Pan
The US stars who've taken to UK panto, from Hasselhoff to Hall
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Life and Style
Approaching sale shopping in a smart way means that you’ll get the most out of your money
life + styleSales shopping tips and tricks from the experts
News
newsIt was due to be auctioned off for charity
Life and Style
A still from a scene cut from The Interview showing North Korean leader Kim Jong-un's death.
tech
Environment
Sir David Attenborough
environment... as well as a plant and a spider
Voices
'That's the legal bit done. Now on to the ceremony!'
voicesThe fight for marriage equality isn't over yet, says Siobhan Fenton
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

The Jenrick Group: Night Shift Operations Manager

£43500 per annum + pension + holidays: The Jenrick Group: Night Shift Operatio...

SThree: Trainee Recruitment Consultant - LONDON

£20000 - £25000 per annum + OTE £40,000 + Car + Pension: SThree: SThree are a ...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

SThree: Graduate Recruitment Consultant

£20000 - £25000 per annum + OTE £35000: SThree: SThree are a global FTSE 250 b...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'