Is there anybody left in Britain who seriously believes that Osborne’s strategy is a success and the right way to cut the deficit? Well, yes, step forward, John Redwood. But who else is there? The perversity of carrying on with the present policy is mind-blowing. Despite the savagery of the cuts already inflicted, the whole object of this callous policy – to reduce the level of government borrowing – is actually going into reverse. Instead of meeting the OBR target for borrowing of £120bn for the current 2012-13 year, it is likely that borrowing will actually soar to £160bn. The cuts are now expected to continue till 2020, as Cameron announced recently, so that austerity is stretching for at least a decade and a half, and quite possibly more. Equally disastrous, the deficit on traded goods, which reached £99bn in 2010 is now likely, on the basis of the latest mid-year figures, to reach £120bn in 2012, or 8.3% of GDP. These results are nothing less than calamitous.
Yet what are the right-wing commentariat, and more importantly the leaders of British industry, now saying? Almost unbelievably they are still ignoring what is staring them in the face, namely that the economy is faced with a classic shortage of demand. Their comments are ridiculously still confined to what is politely referred to in the jargon as supply-side reforms, namely cutting red tape and ‘simplifying’ employment law, i.e. making it easier to sack people. That’s about as effective as trying to fill a lake with glasses of water.
Osborne’s policy will only work now if a further injection of QE (probably another £50bn) somehow sparks growth when the £325bn QE already created has done no such thing. Or if the Eurozone problems are settled quickly (you cannot be serious, as McEnroe would say). Or if the global economy, particularly the US, recovers strongly quite soon – when all the signs are pointing the other way. Or if the British economy, despite all the despair and pain of the CBI and IOD, suddenly perks into life with no obvious stimulus to hand – OK if you believe in miracles.
What defies explanation is why Osborne apparently rejects the two escape routes available to him. One is a one-off levy on the ultra-rich which would impact on less than 0.01% of the population, would not increase public borrowing at all, but could fund a million jobs within the next 1-2 years and turnaround a still bloating deficit into a seriously large revenue-earner. The other is to raise, say, £30bn at an interest rate (0.5%) below the rate of inflation (2.8%), i.e. at nil real cost, and through a ‘special purpose vehicle’ spark an economic recovery through investment in infrastructure, house-building and low-carbon economy. So why won’t he do it?