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The growth script still needs writing

15 December 2011

The Times is being a bit harsh on Cameron in its leader this morning. ‘On the economy’, it says, ‘Cameron has contracted out policy to George Osborne and then followed the
usual (although not invariable) practice of postwar prime ministers of supporting his Chancellor’s decisions. But he has not added to this a convincing contribution of his own.’

Yes, Cameron has not done very well articulating his government’s growth policy. I’ve also noticed that he is not much good at describing the Loch Ness Monster and for the same reason. Unconfirmed
rumours of its existence whirl around now and again. Grainy photos of something supposed to be a UK growth agenda surface. But when expeditions are sent out to prove its existence, they invariably

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Osborne has an austerity strategy: that he’ll cut overall state spending by just under 1 per cent a year and overall departmental spending by 3 per cent a year. But growth? There’s still some way
to go on that. I hate to admit it, but Paul Krugman has a point when he mocks the austerity squad’s lazy assumption that the ‘confidence fairy’ will appear after cuts, encouraging growth. Austerity
is not enough. You need a growth agenda – cuts in tax, regulation or other supply-side stimulus. There are radical ideas inside government for helping companies grow — as we saw with
Adrian Beecroft’s leaked deregulation proposals. But they were killed off by Vince Cable, and given precious little support from Osborne.

Cameron actually did rather neatly encapsulate his government’s strategy in PMQs yesterday, saying ‘It is this government that has got interest rates down to 2 per cent. That is why we have
prospects for growth.’ I.e. cheap debt! Fill your boots, everyone! Which Osborne proposes to do by lending money to companies to whom banks refuse to lend. I have my concerns about this so-called
credit easing – and whether it will create sub-prime corporate debt in the way that Freddie and Fannie created sub-prime housing debt – as well as about the side effects of a QE policy
that reduces gilt yields. But this does appear to be the government’s main growth agenda, summed up clearly by Cameron. The new growth agenda is, pretty much, the old one – but with even more
artificially lowered debt and some promises on corporation tax. We were promised a growth review in the Autumn Statement, but none emerged. Making it tough for anyone to articulate.

There is, to put it politely, plenty scope for Osborne to improve on this. His austerity agenda is backed by an overwhelming majority. His growth agenda could be, too. Let’s hope one appears in
April. Then I’m sure Cameron will articulate it brilliantly.

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Show comments
  • Andrew Fletcher

    Fraser – your supply side suggestions are all well and good but real growth comes from demand not supply side tinkering

    Let’s face It we are a consumer nation in long term gentle decline

    The Osbo technocratic austerity plan is geared towards this reality

  • Richard of Moscow

    “but Paul Krugman has a point when he mocks the austerity squad’s lazy assumption that the ‘confidence fairy’ will appear after cuts,”

    – No, he doesn’t, simply because the goverment hasn’t brought in austerity measures and has increased, not cut spending.
    Krugman has been correct only once, when he reasoned that if the west copies the Weimar Republic and New Labour and borrows far too much, but siphons off some of this money to subsidise useless penpushers in non-jobs, such as the Noble Prize committee, it will greatly please the Nobel Prize committee.

    We won’t get growth with such high fuel and power costs.

  • don scotus

    Fraser you are right on many things but economics is not your forte. 18 moths ago you gave us the Osborne growth line and only 6 months ago you were arguing for a rise in interest rates to fight inflation, which would have been like fighting a fire with petrol. The world teeters on the edge of a 1930’s style recession but Osborne thinks it is 1980 not 1930!

  • daniel maris

    Dennis Churchill –

    The metal was melted down – it just wasn’t used to make Spitfires!

  • daniel maris

    Fraser –

    18 months ago you gave us the growth propaganda. It didn’t happen – I predicted it wouldn’t happen because of the effects of government policy on consumer confidence.

    Now we get a fresh round of propaganda. Obviously at some stage growth may return…but it seems highly unlikely that we will get real per capita growth over the next 12 months, when the government allows mass immigration.

  • Tony Hammond

    I was just pondering this the other day as more of my frugal savings went to debtors, BTL landlords etc.. to keep them happy and me a lot poorer. (The average worker pays £800 in taxes to fund housing benefit – the largest cost of the welfare state which goes straight to landlords)

    Signs of excessive government are everywhere – from Homeopathy departments at my local A&E, to the 90K ‘resident artist’ contract offered in my email as a pre-stitched up ‘job for the boys’ tender to suppliers from my local council.

    The reality is there are no cuts, and the consequence is that the burden of big government, and funding the artificial and unjustified equity of BTL debtors is that its falling on the private sector and savers in higher taxes, inflation, increasing unemployment and lower opportunities.

  • tom jones

    Every budget we get is meant to be the “growth” budget, but they always end up doing next to nothing. I’ve given up hope of growth until the Euro crisis is sorted, which could be years and years.

  • Dennis Churchill

    December 15th, 2011 2:11pm
    Yes I think the fact that we and Continental Europe now have a political class that has no experience outside politics is a huge factor in our problems.
    It is very much a problem of our own making as our best people simply won’t go into politics and by the time in their careers they feel ready for it they won’t fit into the careerists’ culture.

  • AJK

    I like Samuel Brittain’s and Peter Jay’s ideas about how QE should be used- I think Peter Jay wrote about it in The Spectator. Use QE to fund tax cuts and get people spending.

  • Nickle

    Unemployment rockets and the paradox of thrift take-over begins.


    There is no thrift at the moment.

    We have deficit of 140 bn. That’s 140 bn of stimulus, and its not working.

    Keynes is wrong for the current set up. The current set up isn’t people oversaving, its government overspending.

  • strapworld

    Dennis Churchill
    December 15th, 2011 1:15pm I do agree. I recall my grandparents had their ornate metal fence taken down and given to the ‘War Effort’. Mind you it would have them turning in their graves to read your account that the metal was no good. I saw a photograph of said fence and it was rather grand.

    But your main point that until and unless all people realise the utter and complete mess we are in will people buy into any tough measures.

    The problem we have- as in all EU countries- is that our politicians are weak and afraid of getting to grips with the problems. Could be because they are career politicians with no idea of life outside? I do not know. But National Service could change that I believe. May stop these boys sending our armed services off to wars?

    Lord Hutton is impressing me though.

  • Nicholas

    Fatbloke: dog-boiling, blah, blah, blah, Labour script, dog-boiling, Labour propaganda, blah, blah, blah. Boooooring.

    Dog-boiling appears to be a Fatbloke-invented term that has no basis in any kind of reality outside a student union meeting. And yet he talks of others “boosting” their parties?

  • Widmerpool

    Growth Agenda? =Sack Cable!

    The real engine for growth is his Department creating an environment in which Exports go out and foreign money comes in!

    Cable is not a business man IMHO and the closest he comes to millionaires is when he snipes at foreign ones coming to the UK

    Get a real money maker into Trade as Mrs T did with Lord Young and let Vince to go off and do his unctuous snipping elsewhere!

    Maybe he and Sarko are soul mates with their sniping at Dave; and Vince should be appointed our Ambassador in France!

  • Hugo Chav

    It’s a puny strategy from Cam & Oz, they’re acting like it is a cyclical slowdown not a credit blow-out depression. They seem happy to let our standard of livings fall, and possibly collapse, as our debt dynamics move closer to the Event Horizon.

    It does seem the elites only take dramatic action when a final crash forces them to act, by then the damage is far deeper and more terrible. Look at Merkozy not facing up to the facts, CamOz is the same when it comes to restructuring the UK economy.

    It’s been very sad these past few years to watch the British elite blather away whilst our economy and standard of living sink, and we become an Undeveloping Nation.

  • Dennis Churchill

    December 15th, 2011 12:48pm
    We must keep the foreign trade factor in proportion: it only accounts for about 10% of our economy and we run a trade deficit.
    December 15th, 2011 12:21pm
    As you see from my posting above I agree with your points.
    The best example I can think of is the story that was spread during World War 2 that railings would be removed from the parks in order to be melted down. Not true as the metal would be of little use but it showed the public the seriousness of the situation.
    The public will not come on side until they believe there is a problem and this will only be achieved by real cuts to the inflated Feel Good budgets.
    So cuts to N.I contributions and other job killing areas needs to be funded from luxury items such as over enforcement of politically correct dogma. Do we need to spend a billion a year on “Equality” monitoring? Do we need to enforce the EU regulations with such zeal? One man should be sufficient to check that all the markets in the UK only display metric measurements surely?

  • mattghg

    What about the programme of public works announced in the Autumn Statement? Was that all just smoke?

  • Swiss Bob

    What? Nothing on Noyer’s declaration of economic war?

  • anyfool

    There cannot be a growth strategy until the rest of the world starts to grow, almost all countries have been shrinking in terms of actual things created and business moving up a gear, even now data shows China and cohort brics are slipping very badly, and these people are just as broke as the US and the EU,i guess when the whole world defaults the US will still be top dog so you no where to invest your money.

  • Draughtsman

    Well one thing he could consider doing is giving every encouragement to shale gas exploration and development in the UK instead of squandering money and piling totally unnecessary costs on industry and domestic consumers by persuing this green energy fantasy. In the US shale gas has already lowered costs significantly and created real jobs, that is those not dependent on subsidy, in the energy and chemical industries.

    Glimpses of a possible energy future are already apparent, shale gas as a clean bridging fuel to power generation either by modular nuclear fission units or by LENR reaction cells where the first steps are being taken, or even, just possibly, ‘hot’ fusion where there are novel approaches in the research stage.

  • Julian F

    A pretty good review of the position Fraser. The government has got this half-right. As a householder, I welcome the low interest rates brought about in part through spending restraint. As the owner of a micro-business, I can’t point to much that the government is doing to help me expand. A holidays on employers’ NI contributions would be easily the best supply-side reform they could introduce. If such a holiday were to be introduced, my business would be recruiting the next day.

  • justathought

    Fraser how can the PM articulate two opposing growth policies? This is the coalition paradox. The most effective growth policy that Daveveto could announce would be to dissolve parliament and call a general election!

  • whatawaste

    An example of their economic illiteracy can be seen in the green agenda. Lots of wind turbines imported from Sweden instead of buying from a company on the Isle of Wight (since relocated to USA where they supply to the Mid West).

    Solar power installers have been kicked in the teeth because the subsidy was costing too much: we are talking hundreds of millions, not the billions frittered away on corrupt despots and dictators via UK Aid.

    Despite the horse s**t being peddled by the Committee on Climate change, rising energy prices are one of the biggest impediments to growth especially a consumer led one. Gas prices used to be linked directly to the oil price, but the link was abandoned when the oil price hit $150 a barrel a few years ago. And not a peep from the Competition Commision or the Office off Fair Trading. Quite disgraceful and the MSM also played its subservient part too.

  • strapworld

    Osborne’s austerity programme? More money to overseas development, more money to the IMF, more money to problem families (when a return to the workhouse may be much cheaper and of greater effect), Cameron is never short of announcing initiatives COSTING us but very short on details on actual cuts SAVING us money.

    I would have thought the promised ‘bonfire of the quangoes’ would have saved us billions? But no let us take money from the poorest, like junior ranks of the armed services, but keep the quango chiefs and staff in post.

    I am sorry. I really did think that this coalition was going to be good for the country. But we have a government controlled by the few on policies rejected by the vast majority of the people, with a weak prime minister who bends as soon as a problem appears.

    I am awaiting his U turn on the EU. I certainly expect him to sign up to the new treaty (without giving the people a referendum) when a face saving compromise can be arranged by Cleggy.

    But there are massive savings to be made within the public services. Many quango’s far too many people still employed by the state and they have to go.

  • Bickers

    The Coalition IMO have not cut Government spending enough. There’s is plenty of non productive fat to be taken ‘off the bone’. Whatever happened to the ‘bonfire of the Quangos’? Any sane businessman could save tens of £billions without effecting front line services; waste & profligacy remains rife in the public sector.

    If the Coalition wants growth then there’s an easy solution: get Government and the EU off businesses backs! Simplify the tax system. Make Banking in the UK more competitive. The End!

  • Fatbloke on tour


    You are havering.
    Sniffy thought it would be all so easy.

    Expansionary fiscal contraction – Getting others to get us out of the hole that his dog boiling agenda was creating in the UK’s economy.

    Cut deep, cut fast, keep on pushing the dog boiling agenda.
    Big up the structural deficit in your figures and wait for the recovery to really deliver.

    Economics by Meerkat – Simples

    Not big and not clever.
    Plebs scared fartless and economy tanks.
    Unemployment rockets and the paradox of thrift take-over begins.

    Sniffy hasn’t a clue.
    Dave the Rave is totally out of his depth.
    The UK economy is teetering on the edge of a misery spiral.
    The double dip is now a given, what could come next is the scary bit.

    Finally read up on the sub prime issue.
    Freddie and Fannie were poorly run but they did not cause the crisis.

    Wall Street fly boys, greed and stupidity caused the sub prime catastrophe.

  • Dennis Churchill

    The government needs to get the public on side by changing tack from “Growth is around the corner” to “We need to buckle down and this is why”
    That means they must cut the fluff. Supporting problem families, sending billions to the EU and Foreign Aid, keeping criminals like the Congolese rapist reported today as being allowed to stay (at taxpayers’ expense) has to go.
    Not because they are significant expenditure but because they make the public believe it can’t be serious while the government hoses money around.
    The public will not believe it is serious until sacred cows stop being funded.
    The mad Green taxes are not a clever way of fund raising they give the impression we have so much money we can indulge hippies.

  • Nickle

    Let me outline the growth policy.

    We have to grow tax revenues because we won’t/can’t stop our spending addiction.

  • Austin Barry

    “You need a growth agenda – cuts in tax, regulation or other supply-side stimulus. There is painfully little of this around.”
    If Cameron remains obdurate and resists the tsunami tax and financial services regulation proposed by the EU it amounts to much the same thing.

  • mongoose

    Low interest rates keep the pound more competitive than it otherwise would be, which is useful for recovery. That’s on the demand side. The supply side agenda may affect longer-run potential output, but that is not going to have much effect on the short-run cyclical position, especially as the output gap is wider than the OBR and others thought.

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