Wednesday 26 January 2011

Osborne failing on plan for growth, say newspapers of left and right

GDP fell by 0.5% in the final quarter of 2010. Wednesday's newspapers are united in scepticism about the strength of emphasis which George Osborne has placed on bad weather, pointing out that growth would likely have been zero without this. Perhaps more significantly, the broadsheet editorial writers - while differing politically and in their general view of the government's spending cuts - all make sharp criticisms of George Osborne's lack of any coherent strategy or policy to promote growth (while differing in their prescriptions of what form this will take).

The government is responding to the strength with which this argument is being made from all quarters by emphasising that a growth "narrative" will be central to March's budget. One difficulty is that they have been intermittently briefing of their desire to shift the emphasis to growth for several months. The publication of a growth strategy was promised for last October's CBI conference, but was dropped "because, at least according to one government official, there was nothing to put in it", as shadow Business Secretary John Denham noted in a speech last week.

We all know that the government will start talking more about growth. The question of a substantive policy agenda is the real test.

Here's what this morning's editorials say about what the government needs to do.

Every so often along comes a release that is so extraordinary it should be treated instead as a direct challenge to government policies. That is the case with yesterday's health check, which shows national income heading south at a rate of knots – and throws back a question at George Osborne and David Cameron: with the economic outlook so bleak, isn't it time to rethink the coalition's austerity plans? ...

In these circumstances, any chancellor with a budget due in two months would be hastily revising their plans. That should go double for Mr Osborne and his historic cuts; yet yesterday he insisted he would not be thrown off course. As Richard Lambert of the CBI pointed out yesterday, the chancellor conducts too much of his economic policy according to narrow political considerations. The right thing for an economic policymaker to do now would be to suspend many planned cuts and come up with schemes to tackle youth joblessness. If Mr Osborne feels so boxed in by political calculations that he cannot do the sensible thing, that is a shame for him – and a possible tragedy for the country.
- Guardian editorial, 'Economy: Heading south – and fast'

The downturn challenges the strategy of the Lib-Con coalition. For while it has a plan for reducing the budget deficit, it has yet to expound one for growth. That deficiency needs to be remedied. Economic weakness is not a statistical nicety. It creates hardship. Yet the response of George Osborne, the Chancellor, like that of some failing small business, is to blame the weather.

A harsh winter did disrupt travel and depress retail sales, and the GDP number is as yet a preliminary estimate. But even if you strip out the effect of the snows, the economy showed no growth in the last quarter, and there is scant cause for encouragement anywhere in the data ...

The economy also poses political risks for the Government. It will not get credit for its deficit reduction strategy without new jobs and greater prosperity. And so far its message on growth has been timid, muddled and lacking in narrative ... With financial and not merely rhetorical encouragement of enterprise, the economy can expand even amid its structural problems. Growth would make it easier to eliminate the budget deficit. The economy has caught a cold. The Government is struggling to prescribe a remedy.
- The Times, leading article (£), 'Growing pains'

The disconcertingly bad growth figures for the final quarter of last year are being attributed by the Government, not very convincingly, to the weather ...

George Osborne was therefore right to say that the Coalition would not be “blown off course” as it pursues its austerity programme. However, the GDP figures underscore a fundamental weakness in the Chancellor’s strategy: the absence of a credible plan for growth. We have argued consistently that, while the cuts programme is essential to the restoration of the public finances, recovery will only come through a sustained stimulus programme – a point made powerfully by Sir Richard Lambert, outgoing head of the CBI, in his valedictory address this week ... It should start, we believe, with the scrapping of the anti-enterprise 50p rate for high earners. In short, Mr Osborne must keep his nerve on spending cuts and show some nerve on tax cuts.
- Telegraph editorial, Tax cuts needed to stimulate growth.

The credibility of the Chancellor is on the line. The Liberal Democrat leadership, who took a gamble that the economy would survive the Conservatives' fiscal medicine, is going to find itself under increasing pressure. As for Labour, the new shadow Chancellor, Ed Balls, is on the verge of being able to claim vindication for his warnings that the Coalition's programme would derail the recovery.

The Conservatives tried to go on the offensive against Mr Balls yesterday, pointing out that he disagreed with the plan drawn up by the former Labour Chancellor, Alistair Darling, to halve the deficit in four years. But with the return of the spectre of a double-dip recession, Labour's historic disagreements on the deficit shrink into irrelevance. A Conservative Chancellor has embarked on the most severe fiscal consolidations in 30 years, explicitly rejecting any thought of a "Plan B". That suddenly looks less like bravery and more like supreme recklessness.
- The Independent, editorial, 'Economic contraction will have political circumstances

If the disappointing reading hardly heralds a double-dip recession, there is no denying that Britain’s economic pulse is weak ... The government must listen. Mr Lambert’s intelligent critique, mostly free of special pleading, asks the government for a vision of how it sees the country develop in the longer term – where and in which sectors it foresees growth – a roadmap, analogous to the deficit reduction plan, of where policy is headed on such things as taxes.

Such a plan could do much good: it could co-ordinate private sector expectations and unleash pent-up investment. Similarly, the exchequer should have a plan B for public finances: self-fulfilling pessimism is avoidable if people know austerity will be delayed should things go worse than hoped. This would ensure that the fourth quarter was just a bad case of snow.
- Financial Times editorial (£), UK's frozen GDP.


Going beyond the GDP figures to broader issues of the government's economic and political strategy, as it seeks a new director of communications, Daniel Finkelstein in The Times (£) writes an interesting column from a perspective sympathetic to the government. Finkelstein sets out why 'Cutting the deficit alone won't bring victory'. Finkelstein argues that the government is too sanguine about growing opposition to the argument that its deficit strategy is fair and necessary, cautioning that an approach which just accepts and expects unpopularity now in the hope of bouncing back if and when the economy recovers is likely to fail politically.

Finkelstein writes:

Deficit determinism won’t work. The Government will not be in a position to fight its desired campaign if it just waits for the economy to come right and doesn’t care what people think in the meantime. So right now the first rule of strategy requires the Conservatives to persuade voters that they are serious when they say “we are all in it together”; that they are listening to people’s views about the cuts (and their particular emphasis on welfare reform and efficiency); and that that they share their values. Mr Cameron (the one Tory that voters are willing to believe “gets it”) is critical to this. And so, therefore, is the NHS.

It is interesting that supporters as well as opponents of the government are increasingly noting why the content and tone of the government's 'there is no alternative' advocacy is turning people off and preaching only to an already persuaded minority. There is less sign that government ministers buy this. Switch on the radio and the overwhelmingly dominant argument remains very much 'there is no alternative'.

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