Four things Osborne could do to help Britain return to growth
We badly need new ideas, but when it comes to promoting growth the coalition has been hopelessly inconsistent
FACED with yet another set of disappointing GDP figures, both David Cameron and George Osborne were adamant yesterday that their austerity programme should not be held responsible for Britain's return to recession. It was, they insisted, the scale of debt the government had inherited, private as well as public, along with the mess in the Eurozone, which was mainly to blame.
In fact we are not so much in recession as flat-lining, with GDP having been essentially static for the last 18 months. But whether we are in a double dip or bumping along the bottom does not really make much difference in either economic or political terms.
The Eurozone is clearly a factor in our poor performance, but Osborne's own policy of austerity is virtually identical to those being pursued right across the continent. For two years the coalition has been telling us that growth is round the corner, yet the economy remains painfully stuck at a level four per cent below its peak in 2008. Even the 1930s saw a faster recovery.
All this time, too, the Bank of England has been telling us that inflation is about to fall back to its target figure of two per cent, but it never does.
Osborne's biggest achievement has been the way he has managed to take the country with him on the need for deficit reduction. Now, as taxes and prices rise and incomes stagnate, that consensus is fraying fast, just as it is in the rest of Europe.
But if austerity is not working, it is hard to see what will. The Ed Balls solution of more borrowing might be feasible in Holland, where calls for further cuts have just led to the government's collapse, but their deficit is running at a rate about half ours.
Nor is quantitative easing going to solve all our problems. Since 2009 we have printed money on a larger scale proportionally than any other big economy, but with inflation proving stickier than expected it is not the cure-all some had hoped.
We badly need new ideas, but when it comes to promoting growth the coalition has been hopelessly inconsistent. As the British Airways chief, Willie Walsh, complained last month, it sometimes seems as if the Government produces "a growth strategy every week but none of them add up to anything".
There are things Osborne could do which would make a difference, but he has to be prepared to see them through. Here are four for starters:
- Before the election the Tories talked of scrapping two old regulations for every new one introduced. But while the flow of new rules has been reduced, it is hard to think of any of significance that have actually been scrapped. More need to go in many areas. When demand is weak and money tight, deregulation should be a no-brainer for any government.
- Despite the base rate being just half a per cent, smaller businesses now pay nearly ten times that figure on their loans, according to the Bank of England. Meanwhile overall lending continues to fall. Neither problem is new, but both have got worse since the coalition came to power. The Government owns one big bank, controls another and guarantees the rest; why can't it get a grip on them?
- It is the cost of energy, above all, that is putting the squeeze on consumers, but even when wholesale prices fall it never seems to be reflected in utility bills. Equally damaging is that the Government's own demands for expensive investment in renewable and alternative sources are pushing prices still higher, especially for business. Osborne says he is on the case, but we are still waiting for anything much to happen.
- If it were not for cuts in infrastructure spending, GDP would have probably registered a tiny bit of growth in the last quarter, thus keeping us out of recession and sparing the coalition's blushes. Governments over the centuries have turned to public works in hard times, and there is certainly plenty we could be busy on at the moment in this country. Money from private sources would also be available to fund them. Again, the Treasury says it is working on this, but progress is painfully slow.
The lesson of the last two years is that deficit reduction, while necessary, is unlikely on its own to be enough to get the economy moving again anytime soon. If George Osborne still hopes for meaningful growth this side of the election, he needs to broaden his approach.