Politics Home blog: George Osborne has left Britain’s economy exposed to the elements

Despite the fragile recovery here in Britain and worries about the faltering economic recovery around the world a year ago, George Osborne’s first decision as Chancellor was to throw caution to the wind and go for broke.

He decided to cut further and faster than any other major economy – further and faster than was economically wise or necessary. It was a plan for the economy entirely driven by his political timetable.

As I argued in a speech at Bloomberg last summer the new government’s reckless plan was like ripping out the foundations of the house just as the hurricane is about to hit.

In recent months the chances of a global hurricane have been rising. In America, a budget deal has still to be reached to avert a fiscal and political crisis. In Europe, a meltdown in the eurozone – which would have had catastrophic consequences for jobs and investment in Britain – has been averted for now. It remains to be seen whether this week’s deal will be more than just another sticking plaster or whether we will back in the same place in a few months time.

These look set to be uncertain months in the eurozone and the global economy, which makes it all the more reckless that George Osborne is ploughing on with an economic plan which is not working.

Here in Britain last year’s recovery has already been hugely undermined by George Osborne’s policies. Our economy has seen no growth at all over the last six months, while other major countries have grown much faster.

The reasons why our recovery has stalled since the autumn are clear. Consumers and businesses have reined in their spending and investment plans as they anticipate spending cuts and tax rises which go too far and too fast. The VAT rise in January has added to the squeeze on hard-pressed families and pensioners. And consumer confidence has taken a huge knock since last spring when the Tories invented the deceit that, like Greece, Britain was somehow “on the brink of bankruptcy”.

Simply to stay on track for his Budget forecasts, which have already been downgraded three times, George Osborne needs Tuesday’s crucial figures to show growth of 0.8 per cent in the second quarter of this year. If he fails to achieve that then the government’s economic plans will be even further off track and I suspect we’ll see another round of excuses from the Chancellor.

First he blamed the wrong type of snow, even though other countries suffered severe snow blizzards before Christmas and continued to grow. Now he blames ‘global headwinds’ like higher world oil prices, yet other countries have continued to grow faster than us despite all this.

If we continue to see weaker growth and higher unemployment than expected just a year ago, families and businesses will pay the price. And it will be much harder to get the deficit down too – the stalled recovery means the government is already set to borrow £46 billion more than it had planned.

So this weekend George Osborne needs to get his head out of the sand and start taking urgent action to get our economy growing strongly again.

He could start by listening to the Federation of Small Businesses who this week joined the called for a temporary cut in VAT. I’ve already argued that temporarily reversing January’s mistaken VAT rise would ease the squeeze on families and pensioners, give this stalled economy the jump start it urgently needs and so help get the deficit down for the long term.

And with new figures this week showing City bonuses still very high, the case is even stronger for the government to repeat the bank bonus tax to get young people back to work, build more affordable homes and support small businesses.

Of course, after the global financial crisis, we need tough decisions on tax and spending cuts to get the deficit down. But if we are to avoid long-term damage to our economy and get government borrowing down in a sustainable way, we need a balanced plan that puts jobs and growth first.

It’s time George Osborne put economics before politics and took a more cautious approach. With the foundations of our recovery now badly undermined Britain is now dangerously exposed to the elements.

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Posted July 23rd, 2011 by Ed