The Chancellor needs the courage for a new strategy – my Evening Standard article

Two years ago millions of people, together with many in the business community, put their doubts to one side and decided to put their trust in the new Conservative-led Coalition’s economic plan.

People were still feeling the effects of a global financial crisis and wanted a better way forward. The Coalition claimed its plan was “in the national interest”. And David Cameron, George Osborne and Nick Clegg promised that faster tax rises and deeper spending cuts would secure the recovery, get the deficit down — and that we would be “all in this together”.

But it’s fair to say things haven’t worked out. Prices are rising faster than wages, our economy is flatlining, nearly one million young people are out of work, and the deficit is getting bigger.

It’s no surprise that people are now asking what’s gone wrong and if there is a better way. Of course, the eurozone crisis hasn’t helped. But countries such as France, Germany and America have grown faster than us and avoided Britain’s double-dip recession. So why have we fared so badly? The reason is that raising VAT and accelerating spending cuts before the recovery was secure has badly backfired. Business and consumer confidence in Britain slumped. The recovery was choked off and we slipped into a double-dip recession.

The result of this slow growth and rising long-term unemployment is that tax revenues are down, the benefits bill is up and so government borrowing is increasing. On the one test ministers set themselves — to balance the books by 2015 — they are failing. And they are borrowing billions more than the plan they inherited and condemned for not going far enough.

Worst of all, people on middle and low incomes are paying the price for this failure as their taxes go up and tax credits are cut, while the richest earners get a £3 billion tax cut — worth an average £107,000 for 8,000 millionaires.

It’s no wonder businesses, families and pensioners are starting to lose faith. But instead of a backward-looking debate about who was right and wrong in 2010, I think they want to know how we can get our economy moving again, boost living standards and build a better future.

Wednesday’s Autumn Statement on the economy is a chance for Chancellor George Osborne to recognise things haven’t worked out as he promised and try a different approach. He should take the opportunity to do so, because the country will not forgive him if he puts political pride first and ploughs on recklessly with a failing plan.

There are three things he can and should do. First, a plan to kick-start our economy — because years of slow growth and high unemployment risk causing long-term damage.

Of course spending cuts and tax rises are needed to get the deficit down. That’s why we’ve taken unpopular decisions to back a public sector pay cap, cut policing budgets by 12 per cent and cut billions off the defence budget. And we wouldn’t be wasting £3 billion now on a reckless reorganisation of the NHS.

But without jobs and growth the deficit won’t come down. So let’s use the windfall from the 4G mobile spectrum auction to build 100,000 affordable homes, creating hundreds of thousands of jobs and apprenticeships, and cut stamp duty for first-time buyers.

Give small firms taking on extra workers a national insurance holiday — using unspent money in the Government’s failed scheme which is only for new companies and excludes London and the South-East.

And get the welfare bill down by getting people off benefit and into work. We cannot afford another lost generation of young people spending years on the dole, so let’s guarantee a job for every youngster out of work for 12 months — a job they’ll have to take up or lose benefits — funded by a tax on bank bonuses.

Second, we need a long-term plan for our economy. A British Investment Bank should be set up to boost lending to small and medium-sized businesses. Infrastructure investment that would strengthen our economy for the future should be brought forward.

And let’s end the short-termism that has seen this Government dither and delay on so many key decisions about our future aviation, transport and energy needs — to the growing frustration of businesses that plan on a 10- or 20-year time horizon. I fear London’s economy risks being badly undermined if the Government continues to duck these big long-term decisions.

That is why Sir John Armitt, chair of the Olympics Delivery Authority, is leading an independent review, commissioned by Ed Miliband and me, to consider how long-term infrastructure planning can be radically improved.

And finally, we need fair action to help people with the rising cost of living. We should put some confidence and spending power back into the economy with a temporary VAT cut. January’s fuel duty rise should be cancelled at least until April, while next year’s £3 billion tax cut for the highest earners on the same day that taxes go up for millions of pensioners should be dropped.

People should be better off in work than on benefits but cuts to tax credits this year have left thousands of working parents better off if they quit their jobs. That doesn’t make sense. So the Chancellor should reverse his £1.6 billion pension tax relief boost for the very richest and use that money to restore support for families in work.

We need a One Nation approach to the economy: an economy that grows, where everybody has a stake and where the rewards are fairly shared. But the signs are not encouraging. While even Tory Mayor Boris Johnson has backed my call for a stamp duty cut to kick-start the housing market, George Osborne seems determined to stick to his failing policies, regardless of the damage they are causing.

The Chancellor should have the courage to stand up on Wednesday and set out a new approach. Because, as the saying goes, when you’re in a hole, you should stop digging.

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Posted December 3rd, 2012 by Ed