David Prosser: Memo from the OECD: neat surgery, shame about the rehabilitation
Thursday 17 March 2011
Outlook At first sight, the OECD's Angel Gurria gave George Osborne a pat on the back yesterday, praising the Chancellor for sticking to his "Plan" for speedy deficit reduction. But read the OECD's latest report on the UK economy and you will find as many brickbats as bouquets.
For while the organisation thinks Mr Osborne is right to insist on a strict dose of austerity, it is scathing about his failure to plan for economic growth. Capital spending cuts were a mistake it said, planning restrictions remain restrictive, there is no plan forimproving the skills base and the tax system distorts incentive.
If all this sounds familiar, cast your mind back to the valedictory speech given by Richard Lambert earlier this year when he stepped down as director-general of the CBI. Mr Lambert's parting shot was to accuse the Government of failing to offer a vision of how Britain's economy might grow in the future to accompany its proposals for rapid deficit reduction. Mr Gurria effectively repeated that complaint yesterday.
In next week's Budget, to be headlined "A Budget for Growth", Mr Osborne will try to counter this criticism. You can expect a range of micro-measures – like the action on enterprise zones already being trailed – that the Chancellor will say demonstrates his commitment to long-term growth as well as to short-term debt reduction.
The package will be piecemeal, however. We continue to wait for the Department of Business's much-delayed White Paper oneconomic growth, which the Business Secretary, Vince Cable, has promised will provide the sort of vision that Mr Lambert and others have demanded. In the absence of that paper, the Government's approach to the economy looks lopsided: the shock treatment of the deficit comes with no prescription for long-term rehabilitation.
That may explain the OECD's prognosis for the short term. Like the Chancellor, it believes the deficit is too serious for fiscalpolicy to offer any support to the economic recovery. Debt reduction cannot be sacrificed in the name of growth, in other words. Instead, it wants the Bank of England to put aside its mandate to tackleinflation and to keep interest rates lower than it otherwise should. Price stability, clearly is not so sacrosanct to the OECD.
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