Almost all the boastful statements made by Osborne in his Autumn Statement were specious or ill-founded, yet Labour has still not hit him where it hurts in rebutting them. He kept repeating (always a sign in a politician that he didn’t really believe it either) he’d always had a long-term plan. His plan was always, by squeezing the public sector, to release the pent-up but crowded-out energies of the private sector into a surge of self-sustained growth. The opposite has happened: the public sector is certainly squeezed (with highly damaging impacts on the private sector which depends on the public sector for 40% of its custom), but private sector investment remains flat as a pancake. He claimed he had earned the recovery by sticking painfully (though not for his class) to austerity. The truth is the reverse: the recovery, such as it is, derives from renewed consumer borrowing (household debt is now creeping up again to the very dangerous level of £1.4 trillions) helped by interest rates flat on the floor, together with the wrong-headed Help-to-Buy bribe. Austerity has played a role, certainly: it has postponed the recovery, drastically weakened the economy, and imposed enormous yet unnecessary pain on the lower half of the population, but it has not generated an ounce of growth.
Osborne then repeatedly boasted that the government was on course in reducing the budget deficit, and he then had the gall to announce that by 2018 the budget would be in surplus. By any reasonable standards of assessment, that is an absurd fiction. The truth is that the deficit is being reduced at a snail’s pace – in 2011 it was £118bn, in 2012 it was £115bn, and this year it is expected to be £111bn. At that rate it will take more than 25 years to pay it off, and to pretend that that is politically realistic is ridiculous. He quoted OBR figures all the way to 2017 to show that the economy is at last genuinely taking off, but OBR predictions have been notoriously optimistic in the past. Even more to the point, are the foundations for sustainable growth in place? They are most certainly not: business investment is still 25% below pre-crash levels, UK productivity is one of the lowest in the OECD, real wages have already fallen 7% and are still falling, and exports despite a 25% fall in the exchange rate over the last 5 years have still not taken off and the deficit on traded goods this year is still likely to be in excess of £100bn a year.
So where is the demand going to come from? Osborne’s triumphalism is the elevation of partisan politics over sound economics. Will consumer borrowing continue to advance if austerity and falling real wages continue till 2018, as Osborne promises? How can exports recover when the pound, perversely, is actually rising to its highest level in 5 years? And how can living standards, on which so many elections in the past have hinged, if wages, productivity, investment and exports are all falling?