Kitty Ussher has been looking at the UK economy through rose-tinted spectacles in her surprisingly over-optimistic assessment of Britain’s growth prospects under George Osborne.
Ussher says that ‘the economy is in good shape’ and that the Office for Budget Responsibility ‘expects it to keep growing steadily’. In reality the UK economy is losing momentum, not cruising along comfortably. The pace of growth is slowing, and slow growth is bad news for Britain, hardly something to feel upbeat about.
Britain’s GDP grew by 2.9 per cent in 2014 before falling back to 2.2 per cent in 2015. Last November the OBR expected growth to quicken to 2.4 per cent in 2016 but in the March budget it dropped this forecast to only two per cent. Ussher says that ‘the OBR has slightly reduced its forecast of the pace at which the economy is expected to grow’. What she calls a slight reduction strikes me as a very significant slowdown and a body blow to Britain’s economic prospects. It should bother Osborne too because his chances of meeting his debt and deficit targets are largely determined by how fast the economy expands.
Ussher’s assessment appeared only hours before the International Monetary Fund unveiled its latest verdict on where Britain is heading, now expecting even slower UK growth this year, only 1.9 per cent. This is way below both the UK average before the financial crisis and barely half the rate we should be aiming for, given the significant extent of underemployed labour and unused industrial capacity. The UK economy is performing way below its potential and Osborne’s austerity policies will keep it that way.
Olivier Blanchard, until recently IMF chief economist, does not share Ussher’s optimism either. He has pointed out that growth is still slow across the advanced economies. He describes their medium-term prospects as ‘mediocre’ and expects slow recovery to continue.
Ussher fails to note Osborne’s plans for further spending cuts and tax rises mean his fiscal squeeze is to go on. He boasted in the last parliament that he had squeezed the UK economy tighter than any of the advanced economies, twice as tight as in the United States or the Eurozone. Sadly he plans to do so again in this parliament.
It is his austerity policies that are holding UK growth back. They are the key reason why Osborne is falling short of his debt and deficit targets. The Institute for Fiscal Studies expects the drag of ‘fiscal consolidation’ (the technical term for cuts), to continue holding back growth between now and 2020. Usher seems blind to the danger.
Slow growth across the western world is not surprising and the problem is not unique to the UK. All the advanced economies have been in the grip of neoliberal policies since the G20 summit in June 2010 reversed its previous stance led by our last Labour government and agreed to prioritise cutting government budget deficits and bringing down national debt. The G20 governments should have made their number one aim completing recovery from recession and keeping growth going. Instead they opted for cuts in a futile attempt to take a shortcut to balanced budgets and lower debt.
What is driving the austerity policies that are doing so much damage to the economy is neoliberalism, the small government ideology that favours market forces wherever possible and tolerates state regulation only where absolutely necessary. It has cost the poor and middle classes a relative decline in their living standards and aggravated economic and social inequality. Osborne’s obsession with shrinking the state and minimising the role of government is removing the social safety net that John Maynard Keynes and William Beveridge pioneered and which is the mark of a civilised society.
As leading economists have shown, a few years of above-trend growth would quickly eliminate most of Britain’s budget deficit. It could be triggered by a fiscal stimulus, ideally a big boost to public investment focused on housing, infrastructure, skills training and low-carbon investment. That would get the economy back on the road to faster growth. Sadly it looks a long way off.
Meanwhile Britain has a record trade deficit; dreadfully low productivity; manufacturing decline; ballooning personal debt; growing inequality and job insecurity. If Kitty considers this as being in ‘good shape’, I would hate to know what her ‘bad shape’ might be.
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Peter Hain is a former member of the cabinet and is now a member of the House of Lords. His critique of, and alternative to, neoliberalism, Back to the Future of Socialism, was published by Policy Press in 2015. He tweets @Peter Hain
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