The Tory line on the economy: consistent but bizarre

8th April, 2011 4:04 pm

OsborneBy Lisa Nandy MP / @lisanandy

Yesterday, George Osborne capitalised on Portugal’s bailout to accuse those who oppose his dangerous and misguided austerity measures as ‘playing Russian roulette with Britain’s national sovereignty.’ The Tories’ line on the economy is at least consistent even if it is increasingly bizarre: cuts are the only way to reduce the deficit – those who disagree are simply in denial.

This claim, that theirs is the only credible approach to the economy, was shaky even before the vehement opposition from economists like David Blanchflower and Joseph Stiglitz. Their alternative visions of how to reduce the deficit by stimulating growth have a large following, and increasingly it is the Tories that look like they are in denial.

Yesterday’s statement from Osborne that the coalition’s ‘credible deficit reduction plan’ had commanded ‘near universal confidence’ was as baffling as it was audacious in the face of overwhelming evidence to the contrary. In the aftermath of the budget, Ed Balls showed that GDP growth had been rising and inflation and unemployment falling as a result of Labour’s intervention after the financial crisis. According to the Office for Budget Responsibility (OBR) in 2009, government investment rose by 16.9%.

Contrast that with the disastrous effect of the coalition’s approach. Unemployment has topped 2.5 million, youth unemployment is the highest since records began in 1992, inflation is rising and growth is falling. Behind every one of those figures lies a human tragedy. The devastation is not confined to the public sector – the cuts are causing havoc in the private sector too. Households’ debts have risen and real disposable income has fallen, sapping confidence out of the economy and demonstrating the need for government investment. Governments can provide confidence where markets have failed.

But while some measures are shortsighted, others are starting to look increasingly reckless. Cutting spending on education, an area with one of the largest economic multipliers, will do little to encourage confidence and will more likely lead Britian down the path that Ireland, Greece and Portugal have already taken. Astonishing then that Osborne chose these examples as evidence to support his argument.

The government has already shown it can change course when the pressure is greatest, most recently on the fuel duty. It is time to admit that schemes like Aim Higher and Building Schools for the Future must be reinstated, and that the OECD is right today to call for the reintroduction of the EMA. It is not just because these cuts were unfair and hit the poorest the hardest but because this attack on the most vulnerable is also an economic disaster.

As Johann Hari has noted, wealth is being taken from the middle-class and the poor and handed to the super-rich. It makes no economic sense. Every pound earnt by the lowest earners goes into local shops and services, it doesn’t sit in bank accounts, and in areas like Wigan this private sector stimulus is exactly what is so desperately needed.

It is even more distasteful that this transfer of wealth from the many to the elite few is being overseen by a cabinet of millionaires. As the April recess begins, it is becoming apparent to me just how much anger that is causing up and down the country. The question is, how will Labour respond? This anger is not just an opportunity for the Labour Party to shape an alternative to the argument that only spending cuts can deliver economic recovery, but it is also a responsibility. The public deserve another option.

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