James Moore: Is Mr Osborne trying to tip us off a cliff with his deficit shock therapy?
Wednesday 26 January 2011
Outlook George Osborne was talking tough yesterday, with a nod to the heroine (Mrs Thatcher) whose name he dare not mention in public in case it upsets the voters. "We will not be blown off course by the weather," he boldly proclaimed, as the economy nosedived into a tailspin.
Because while it us certainly true that the cold snap had an impact on the UK's GDP growth in the fourth quarter, economists had already factored that in when they forecast anaemic growth of about 0.4 per cent. Even if the snow had stayed away, the ONS said growth would have badly undershot that – if GDP grew at all. It seems there is something much nastier going on in the economy than a bit of cold weather.
And that's not the worst of it. As this column pointed out yesterday, these figures cover the period before the Government's spending cuts, announced last year, really start to bite. The VAT rise to 20 per cent will take money out of the pockets of consumers who are already faced with wage rises that will not come close to matching inflation, if they even get a rise.
But the laddie's not for turning. There won't be any changes made because of a bit of snow, even if the economy's problems are actually far more deeply-rooted than that.
There is no doubt action needs to be taken to reduce Britain's gargantuan budget deficit. But the trouble is that the Government appears to have adopted, in the words of one economist yesterday, a "satnav approach" to policy, like one of those old-style machines that had people driving into the sides of buildings or rivers for a most unwelcome (double) dip.
It is early days, of course, and the numbers may yet be revised upwards. The current quarter may show that this is a blip. But, equally, it may not. No wonder Ed Balls was struggling to stop himself from smiling (he really shouldn't, he has the sort of leer that frightens small children) as he toured the television studios yesterday. His new job picking holes in Mr Osborne's policies could hardly have got off to a better start.
Mr Balls shouldn't be allowed to forget the role he played in getting us into this mess. But the best of it is, he may be right when he argues that the medicine Mr Osborne is administering will make the disease worse. If Chancellor Osborne doesn't want to give his bumptious shadow a second bite of the cherry in three months' time, he has some thinking to do. He should start by looking at the highly-suspect decision to raise VAT, not least because the strains on people's finances mean that it might not raise him much, if any, extra revenue.
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