The following article deals with Osborne’s responsibility for the current slow down in the British economy. The article previously appeared here on Left Futures under the title ‘No hiding place for Osborne’.
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The British mainstream media is now so clearly biased in favour of the ruling party it can sometimes seem as if politics is entirely divorced from reality. But reality has a habit of intruding on make-believe. This is the position George Osborne now finds himself in.
In the Autumn Statement, the Office for Budget Responsibility (OBR) ‘awarded’ Osborne £27 billion in lower Budget deficits because of projected stronger growth. The March 2016 Budget is likely to tell a very different story, with growth forecasts slashed. Osborne is likely to admit that the Tory Government will again miss its deficit for the current Financial Year and has, in the words of Shadow Chancellor John McDonnell MP, “been getting his excuses in early.”
In June 2010 Osborne and the OBR projected that the £153 billion deficit would now be eliminated. Yet it only narrowed by £64 billion. Even the OBR’s latest forecast shows the deficit at £73.5 billion for the current year, meaning the deficit is still close half its original size.
The reason for this is twofold: growth has been far below official estimates and cuts don’t lead to savings. Austerity slowed the economy to a standstill in 2012 and then Osborne abandoned new measures austerity measures, instead stoking up consumption and house prices to help get re-elected. Government current spending is also £40 billion a year higher than when the Coalition took office, because austerity increases low pay, under-employment and poverty. At the same time, it is Government investment that has actually collapsed.
How could Osborne have got it so wrong?
He is often described as an ‘ideological Chancellor.’ He believes in austerity and shrinking the state, subscribing to the notion that the state impedes growth and that removing its role in the productive sectors of the economy will lead to prosperity. This applies across the board – to education and health, banking as well as energy, water, transport, or house building. He believes his medicine works and is repeatedly surprised when it doesn’t. He is then obliged to rationalise or find excuses for its failure.
This is what led him to a U-turn on growth. But any observer of the economic data would know that the economy was already slowing. To take one example the annual growth rate had already slowed to 2.1% in the third quarter of 2015 from 3% in mid-2014.
Rationalisation of the troubles to come
In his ‘cocktail of negative factors’ affecting the economy Osborne cited the turmoil in the Middle East, the slowdown in China and falling commodities’ prices. All of these are international factors of varying significance. But in truth the continued slowdown in the British economy is mainly home-grown.
Middle East turmoil has been a continuous factor since Britain and the US first began bombing it some years ago. But as it is not new it cannot be responsible for a downturn.
In terms of China, Britain does not export much and very little of that low total is destined for China, just 2% of total UK exports. The Chinese economy has slowed from 7.5% growth to 6.5%. The direct effect on Britain’s growth is therefore negligible.
The fall in commodities’ prices is very significant globally, and depresses Britain’s North Sea oil output. But as Britain is a big net importer of commodities, the collapse in commodities’ prices is a net benefit to the British economy.
The responsibility for the slowdown in Britain can be laid squarely with Osborne. He inherited a slow recovery in 2010 and promptly stalled it with austerity. Because the economy was stagnating in 2012 and Tory poll ratings fell, Osborne then stoked rising consumption and house prices in order to get re-elected. That short-lived and unsustainable boom-let which is now running out of steam.
This was predicted by numerous leading economists. Now, Osborne will deepen this slowdown by imposing a second round of austerity. It will have the same effect as the first, although in circumstances of slowdown rather than recovery.
But the political situation has changed dramatically. There can be no blaming the effects of this new crisis on Labour. Instead, Labour now has a leadership utterly opposed to austerity and beginning to advance an alternative to it.
In addition, wider layers of society are drawn into opposition to aspects of austerity. This includes highly skilled health workers. It will increasingly include teachers, students, industrial workers, housing association tenants and many more, struggles that can be linked together through initiatives such as those organised by the People’s Assembly Against Austerity.
Not only is the broad anti-austerity movement is growing, but crucially under Jeremy Corbyn there is now a political leadership in Parliament to offer an alternative policy for Government. The fightback is stepping up – we all have a duty to get involved, both in building the People’s Assembly Against Austerity movement, including its Labour wing the Labour Assembly Against Austerity, and in building Labour’s electoral support for this year’s London Mayoral Contest and the election of a Jeremy-Corbyn led Government in 2020.
See labourassemblyagainstausterity.org.uk and www.thepeoplesassemblyagainstausterity.org.uk for more information and to get involved.
EVENT: Better Off With Labour – The Alternative To Osborne’s Cuts – 9 March 6.45pm, House of Commons. Annual LAAA pre-budget event with speakers including John McDonnell MP and Cat Smith MP. RSVP on Facebook at https://www.facebook.com/events/1254712247879119/