Hurrah! The coalition’s medicine is working, the economy is back in growth, Britain is heading out of the woods and the credit rating agencies have delivered their critical clean bill of health. Austerity is working, so the people ought to be grateful for the medicine to come. So it would seem, as George Osborne won the battle of the headlines with the news that the latest gross domestic product growth figure of 0.8 per cent for July to September came in at twice the widely predicted 0.4 per cent. While the Chancellor lauded the figure, and the removal of Britain from the mighty Standard and Poor’s “negative watch” as proof that the British economy is well on the road to recovery, his Tory colleagues taunted Labour. With what they claimed was Labour’s “hoped for” double-dip recession now removed from the horizon, it was asserted that Labour now had nothing to say on the economy.
But all this is dressage in a false dawn. Labour’s warnings about the effect of the cuts which are still to come set out a policy for avoiding the double-dip that the coalition Government is risking in spite of the GDP figures. It is a rational, measured and sensible approach compared to the throw-of-the-dice gamble of Mr Osborne, Danny Alexander and David Cameron. They are keen to portray Ed Miliband and Shadow Chancellor Alan Johnson as dependent on it all going wrong. And if it does, they will accuse Labour of being responsible for talking down the economy.
In fact, the Government should be conceding some credit to its predecessor and listening to economists such as Paul Krugman, Joseph Stiglitz and Nobel prize-winner Christopher Pissarides (see story, page 7), who in various ways warn that the coalition plan is going in the wrong direction for recovery. The most striking factor in the GDP figures was the strong performance of the construction industry, with output shooting up 4 per cent in the third quarter on top of the 9.5 per cent jump in the second, making it the largest single contributor to growth. This can be directly traced back to the Labour Budget of 2009 and the economic stimulus that followed; much of the building activity was in the public sector. Under the Government cuts, capital spending is to be cut sharply, sending this improvement into reverse – already down £5 billion this year, £8.1 billion next and 29 per cent in real terms overall in the next five years.
The Government’s great economic gamble is predicated on two pieces of wishful thinking. The first, that cutting public spending is essential to market confidence, is aided and abetted by the credit agencies. Stanley and Poor’s decision to restore Britain’s AAA rating was based politically on the promise of £81 billion of cuts. The second is that the private sector – currently responsible for the largest contraction in the economy since the crisis began – will fill the employment void left by the cuts, or what Mr Cameron insouciantly describes as “taking up the slack”.
If the gamble does not work, this ray of short-lived good news will be looked back on as the last hurrah before a decade or more of waste and misery.
