Autumn Statement: George Osborne claims we’re all in this together. But we’re not

Economic View

David Blanchflower
Wednesday 03 December 2014 23:42

The UK economy was growing rapidly in 2010 when the Coalition inherited it from Labour; the fastest growing quarter since 2008 was Q2 2010. Growth collapsed immediately after the Coalition implemented its economic “plan”. Only when austerity was loosened did the economy start to grow again.

In his emergency Budget speech on 22 June 2010, George Osborne claimed that “Our policy is to raise from the ruins of an economy built on debt a new, balanced economy where we save, invest and export… The forecast shows a gradual rebalancing of the economy, with business investment and exports playing a greater role and government spending and debt-fuelled consumption a smaller role.”

Based on his own words the Chancellor has failed the economic test he set himself. Four and a half years later we know the economy hasn’t rebalanced; the country isn’t saving more; it isn’t investing or exporting more. The AAA credit rating is past history.

Osborne went on: “In order to place our fiscal credibility beyond doubt, this mandate will be supplemented by a fixed target for debt … to ensure that debt is falling as a share of GDP by 2015-16”. That hasn’t happened either.

“Some have suggested there is a choice between dealing with our debts and going for growth,” he said. “The crisis in the eurozone shows that unless we deal with our debts there will be no growth.” It turns out that we have had growth but haven’t dealt with the debt problem. The Coalition have only lowered the deficit by a third.

GDP per head still hasn’t reached pre-recession levels. Output is higher because there are simply more people. The deficit is up. Real earnings are down 10 per cent. Earnings are not up in full-time work. It remains unclear whether this decline in real wages is part of the Coalition’s long-term economic plan that they claim “is working”. Laughably, Osborne in his speech again claimed “we are all in this together”. Of course we are not.

The Autumn Statement was a last-ditch attempt to pull the wool over the electorate’s eyes before the general election. The hope is to convince the public this Coalition has succeeded. It hasn’t. There was no mention that this has been the slowest recovery in anyone’s lifetime. Every other recession in the past 100 years saw lost output restored in under 48 months compared with 66 months this time round. Real wages have fallen by an unprecedented 10 per cent since the Coalition took office.

The announcement of infrastructure spending for roads and flood defences was essential because of the disastrous cuts in public sector capital expenditure implemented four years ago. Now Osborne is hoping to buy votes in marginal constituencies. The infrastructure remains a crumbling mess and the NHS underfunded.

Contrary to what the Chancellor claimed, the UK economy is not the fastest growing G7 economy. The US grew faster over the last two quarters; four of the last five; seven of the last ten.

The Office for Budget Responsibility (OBR) is forecasting the UK will slow in 2015 and 2016. Forecasts from the OECD and the IMF suggest that growth in the US will be faster than in the UK in 2015 and 2016. Since the Coalition took office growth has been below the G7 average.

The fact the OBR forecasts that the deficit is about to fall doesn’t mean it will actually happen. We have been here before. The OBR forecast of rapid growth every year from 2010? That didn’t happen.

Government loans of £10,000 to post-graduates was a good idea. So is abolishing national insurance on apprentices. But the bottom line is that in May 2015 the vast majority of the UK electorate will be worse off than they were in 2010. The Autumn Statement changed little. This is not a new, balanced economy. Can’t say I am surprised.

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