Cuts without growth won’t fix the deficit – my Daily Mail article

Now the dust has settled on last week’ s Budget, there’s one thing all sides of the political debate can agree on – it didn’t change very much.

The course had already been set in George Osborne’s first Budget last summer, when he ditched Labour’s plan to halve the deficit over four years in favour of eliminating it entirely before the next election.

As he boasted then this would mean £40billion of extra tax rises and spending cuts beyond Labour’s plans. And in a telling moment this month Nick Clegg revealed that this approach was, as I have long argued, a political choice.

‘They have been our choices, not forced on us by the bond markets as they have been in greece and Ireland,’ he said.

Last Wednesday made little difference. George Osborne decided to carry on regardless in the face of growing evidence that this strategy to cut the deficit further and faster than any other major economy in the world isn’t just hurting, but it’s not working.

It’s clearly hurting because tax rises combined with rising inflation and pay freezes mean families are facing the biggest squeeze on their incomes for 80 years.

And while the banks are getting a tax cut this year, there are deep cuts to frontline services we all rely on like the police, children’s centres, libraries and even our NHS, which David Cameron promised to protect.

The Budget promised a £48 tax cut next year, though pensioners won’t get it. And since the VAT rise alone will cost a family with children an extra £450 each year it was, as the Institute for Fiscal Studies said, a case of giving a little with one hand but taking away with lots of others.

Even the Budget’s headline grabbing penny off petrol duty is looking paltry compared to the 3p a litre George Osbourne’s VAT rise is adding. We all know it’s hurting, but the real question is whether this strategy to cut so deep and so fast will actually work?

Well, a year ago, at the time of Labour’s last Budget, the economy was starting to grow strongly again, inflation was lower and unemployment was falling.

After the biggest international financial crisis and global recession since the 1930s – which caused tax revenues from the City to collapse and required government action to stop recession turning to depression – we had a huge challenge to reduce the deficit.

There was a long way to go, but the economy was starting to pick up.

And because more people were in work, paying taxes and not receiving benefits, borrowing ended up £20billion lower than forecast.

That’s all changed now. At the end of last year the economy ground to a halt. Inflation is rising and consumer confidence is at its lowest for nearly 20 years.

The independent Office for Budget Responsibility said it all: they judged last week that growth would be lower this year and next, unemployment would be up to 200,000 higher. And the result? Borrowing will actually be £46billion higher.

That doesn’t make economic sense. We have to make tough choices to get the deficit down – some fair tax rises and spending cuts. But by going too far and too fast, George Osborne is in danger of actually making it worse.

There is a better way. We would be halving the deficit steadily over four years and putting jobs and growth first because getting the economy moving again and more people into work is the best way to get the deficit down.

As one MP said after the Budget a year ago: ‘We must not cut government spending too soon and risk plunging a fragile recovery back into recession. Cuts without economic growth will not deal with the deficit.’

That was the Business Secretary Vince Cable. Now he’s part of a government pursuing the very strategy he warned against, he must be hoping he isn’t proved right.

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Posted March 28th, 2011 by Ed

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