Why today’s GDP figures are a disaster for George Osborne
January 25, 2013 // By: James Meadway
The UK economy shrank in the last three months of 2012, and did not grow at all during the entire year. Without the Olympic blip over the summer months, there is no doubt that 2012 would have seen it shrink overall.
The national debt and the government deficit both continue to rise. A faltering economy has not delivered the tax revenues needed to close the gap between the government earns, and what it spends.
These figures are a disaster for George Osborne. The entirety of his economic strategy – such as it was - lies in ruins. He had two targets – reduce the national debt, and to shrink the deficit – and he has failed on both. He promised a return to growth by this year, fuelled by booming exports and skyrocketing investment by businesses. But despite more than a 30% fall in the value of the pound, the trade deficit – the gap between what we import and what we export - has hit record levels over the last year. And business investment, despite confident 2010 predictions by the “independent” Office for Budget Responsibility of a 10% increase by 2012, has crawled up only around 4%.
The principle blame for this now lies with Osborne himself. It was he pursued austerity with such idiotic vigour. It was his decision as Chancellor, and it was on the success of his programme that he staked his reputation. That is now secured, and there should be no serious doubt about it: Osborne is, by some distance, the worst Chancellor of the Exchequer this country has ever suffered under.
In fairness, Osborne had the full-throated support of not just his own party, but his junior Coalition partners and most of the mainstream press. They had some vocal support from business, and, in turn, received the backing of a selection of economists who really ought to have known better – although never underestimate the capacity of the profession to delude itself. Disastrously, the official Opposition has committed itself to a marginally softened version.
There is no, and never has been, a credible economic case for austerity. Austerity, in a weak economy, will make that economy, for a simple reason. What you or I spend is necessarily what someone else earns – it has to be, or it wouldn't be spending. If I cut my spending, someone else must be earning less. If all of us cut our spending – and since 2008 that is precisely what all of us, businesses and households, have been doing – everybody earns less. You fall into a recession. If the government then also cuts its own spending, the recession worsens. Any macroeconomics textbook in any university library will tell you this story. It is - or it should be - ABC.
Osborne will now be under enormous pressure to ease off from his programme. Expect an announcement in his March Budget. But don't expect any let up in the sheer misery he is imposing. He will make another push to boost infrastructure spending, if he has any sense. But his sole remaining scrap of credibility will be in trying to stick to his own spending targets – lose those, and he loses everything. Expect further cuts to social security, and tighter departmental spending limits. And don't expect infrastructure to mean anything other than the usual parade of myopic, ill-co-ordinated schemes: road-building, maybe an airport extension, and concentrated in the south east. Osbornomics, part two: starve the poor to cut Heathrow waiting times.
Not that it will it make much difference. The straw the Coalition have been clutching at are the employment figures. Employment, on the official count, rose in the last part of last year. Fiddled figures aside, employment only looks healthy because so many have been pushed into short-time working. One in ten workers are now underemployed. Meanwhile, real incomes for most continue to fall. This is Osbornomics at work: bad jobs, falling living standards and a failed pursuit of GDP growth that would only deliver for the super-rich anyway. Time for a radical rethink.