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

Arts & Entertainment
The Honesty Policy is a group of anonymous Muslims who believe that the community needs a space to express itself without shame or judgement
music
Arts & Entertainment
Martin Freeman as Lester Nygaard in the TV adaptation of 'Fargo'
tv
News
Waitrose will be bringing in more manned tills
newsOverheard in Waitrose: documenting the chatter in 'Britain's poshest supermarket'
Sport
Pablo Larrazabal jumps into a pond in Kuala Lumpur to escape a swarm of hornets
videoSpain's Pablo Larrazabal's had a refreshing solution
VIDEO
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Arts & Entertainment
tvIt might all be getting a bit much, but this is still the some of the finest TV ever made, says Grace Dent
Sport
Jonathan Trott will take a second break from cricket after suffering a repeat of the stress-related illness that forced him out of the Ashes tour of Australia
sport
Life & Style
life
Life & Style
fashion
Arts & Entertainment
Ian Anderson, the leader of British rock band Jethro Tull, (right) and British guitar player Martin Barre (left) perform on stage
musicJethro Tull frontman leads ‘prog rock’ revival
Life & Style
Father and son: Michael Williams with son Edmund
lifeAs his son’s bar mitzvah approaches, CofE-raised Michael Williams describes the unexpected joys he’s experienced in learning about his family’s other faith
Sport
Gareth Bale dribbled from inside his own half and finished calmly late in the final to hand Real a 2-1 win at the Mestalla in Valencia
sport
Arts & Entertainment
Who laughs lass: Jenny Collier on stage
comedy... writes Jenny Collier, the comedian whose recent show was cancelled because there were 'too many women' on the bill
News
House proud: keeping up with the Joneses now extends to children's playhouses
newsLuxury playhouses now on the market for as much as £800
News
news
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit