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Why George Osborne’s ‘Plan A’ has failed – and what to do next

16 October 2012

Does George Osborne need to adopt a Plan B? This will be the topic for a Spectator debate a week on Monday. But the argument is pretty clear to everyone with even a passing interest in the trials of George Osborne. Let’s look at the story so far.

His Plan A – accelerated fiscal consolidation – was based on two key premises:

  •  there was no alternative to cutting the deficit much more sharply than previously planned, because otherwise the markets would panic and long-term interest rates would rise sharply.  As one Treasury Minister put it:

‘Britain’s AAA credit rating was under threat…George Osborne had no choice but to come up with a comprehensive deficit reduction plan—not to merely halve the deficit over four years, but eliminate it.’

  • that fiscal consolidation would have only have a small impact on growth, or indeed might even be beneficial. Matthew Hancock, George Osborne’s former Chief of Staff (now a Minister at the Department for Business) discovered that ‘research into dozens of past fiscal tightenings shows that, more often than not, growth doesn’t fall but accelerates’.

The past two years have tested both assumptions, and found them failing. The deficit is now forecast to be if anything larger than before ‘Plan A’ was announced; yet, as deficit forecasts have risen. Rather than panic, markets have responded by dropping long term interest rates not just here, but in the US, Japan and indeed in every industrialised country that has an independent monetary policy and borrows in its own currency (ie, those not in the eurozone).

And should George Osborne take a bow, saying that these low rates are a reward for his cuts? Both economic theory and the empirical evidence demonstrate beyond serious doubt  that the current low level of interest rates is the result of weak growth, both here and internationally.

Meanwhile, as the IMF has belatedly recognised, it now seems clear that the negative impact of ‘Plan A’ on growth has been significantly greater than expected, although matters have also been exacerbated by even more damaging policy mistakes in the eurozone, as well as high commodity prices.

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What is the government’s response to this critique? At the moment, it appears to be to argue that the success of Plan A is demonstrated by the fact that ‘we’ve cut the deficit by a quarter‘. Leaving aside that cutting the deficit by a quarter by now was precisely what was planned before Plan A was announced in the first place; and leaving aside too that so far this year the deficit has actually increased sharply, how has this cut been achieved? Mostly, by cutting capital spending – public investment, as I explain here.

So what should we do?  The main short-term problem, as Vince Cable argues,  is a lack of demand.  And this is easily remedied. The government can borrow money for essentially nothing (the yield on long-term index-linked gilts is close to zero).

It’s not as if we can’t think of anything to spend money on. The UK suffers from both creaking infrastructure and a chronic lack of housing supply, especially of affordable housing. In these circumstances, both common sense and basic macroeconomics argue that it is the role of government to channel those private sector savings into demand and investment, by borrowing more if need be.  In addition, a temporary, but large, cut in National Insurance Contributions for both employers and low-paid employees would boost labour and consumer demand at the same time as improving work incentives.  Broader and more comprehensive measure to tackle youth unemployment would also help.

So in the short term, there is plenty that can be done to help the UK economy. The main thing holding back growth in the UK is bad policy, here and of course in the eurozone.  Over the longer term sustainable growth will require a whole host of policies: planning reform, increased aviation capacity, better quality education for disadvantaged children, better childcare provision, clearer pathways from school to work for those who don’t go on to higher education.

On all of these, we know what the problems are, but successive governments have failed to address them. One policy area that currently works very well, however, is the labour market, which has performed extraordinarily well of late.  Three decades of successful reform have given the UK a flexible and generally well-functioning labour market, suggesting that there is little to gain from further deregulation. Spain and Italy need radical labour market reform; but we don’t.

There is however one area where deregulation is urgently needed, and that is immigration. The government has introduced a set of new burdensome and bureaucratic rules and regulations, including a quota on skilled migrants, that are designed expressly to make it more difficult for businesses to employ the workers they want. By the government’s own estimates, this will reduce growth and make us poorer. But another consequence has been to take a thriving, dynamic and high value-added export industry – further and higher education – and stop it from selling its product to foreigners.

As long as the UK policy debate focuses on immigration as a threat to be minimised, rather than as a potential driver of growth and innovation, then the UK will not be ‘open for business’.

The UK economy has many underlying strengths. Since 1995, GDP per capita has grown faster than in Germany, France, Japan or the US. This reflects improvements in the UK labour market, a more skilled workforce and a more competitive economy. There is, of course, plenty to worry about. We are still stuck in the longest period of stagnation in recorded economic history, thanks to damaging and unnecessary policy failures, both here and globally. But things could and should be better. If only policymakers would act.

Jonathan Portes is director of the National Institute of Economic and Social Research and former chief economist at the Cabinet Office. To book your seats for the Alistair Darling vs Norman Lamont debate, a week on Monday, click here. Ryan Bourne from the CPS will respond tomorrow.

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Show comments
  • Stella

    Why can’t politicians just accept that their plan went wrong and move on instead of refusing to accept the obvious? It would make life for everybody a whole lot easier.

  • Adrian

    Every economist and politician seems to have some master plan to fix everything when there’s quite obviously no silver bullet here. A period of paying down debt, and gradually deflating the still inflated housing bubble is required.

    It’s a difficult balancing act and the government has a very narrow path to follow despite what the ‘economic sage’ Ed Balls tells us.

  • Dumfries Bill

    Unless your aim is to compromise democracy and skew it in favour of the powerful, austerity does not work. So, if the aim of the Tories is that then it can be considered successful. However, if ruining democracy qualifies as a definition of success then the ‘nasty party’ tag is not only well desrved it is something of a misnomer. It should be the spineless, callous. brainless lickspittle party. It is interesting to see how defensive people get when they are faced with facts that prove their world view was wrong. If you want an example see the comments below defending the unteanable and outright wrong austerity position or Plan A.

    • Slim Jim

      What would your solution be? It is undemocratic to burden this country with even more debt, and send the bill to our children, and grandchildren. Also, sending billions of pounds to an undemocratic institution like the EU (they’ve already replaced 2 elected governments) is beyond parody, as is printing money. Remind us Bill – how much are we paying in debt interest per year? I’m afraid the solutions to our problems will hurt, there is no magic money tree or utopian ideology to fix the mess.

      • Alastair Cunningham

        There has been an interesting ongoing debate about the extent to which ‘burdening the next generation with debt’ is actually probable, or indeed possible. Intuitively it seems to make sense but actually when you sit down and model it macro-economically it is far less clear, and certainly nowhere near as bad as one would think.

  • Slim Jim

    Let me see now – is Plan B about more borrowing and higher immigration? Is it any wonder we’re in the mess we are in? The lunatics are still clearly in charge of the asylum.

  • Daniel Maris

    INteresting item on Radio 4 this morn about how the Government’s approach to QE is seriously undermining pension funds.

    That’s one more reason why we need a new approach to QE.

  • Daniel Maris

    I think we need to distinguish between short term, medium term and long term.

    Short term, I think we should follow the Japanese example and use QE to create what are in effect “gift tokens” for people to spend on a range of goods and services.
    I think something like that in the range of £100-£500 per household would make a difference in changing the national mood. This will be much more effective than giving QE money to the banks. Call them Renewal Bonds or something else with a positive ring.

    I think that should also be tied in with leglislation requiring firms to create shareholdings for workers.

    We should also pursue medium term goals of creating national, regional and local enterprise agencies with Dragons Den style investment panels to fund investment in new enterprises, particularly manufacturing and export industries.

    Short to medium, we should be doing much more to create energy independence and vastly improved energy efficiency. To do so through capital investment in a green energy infrastructure will reduce the pressure of energy bills on people’s disposable income.

    Long term we should be restructuring tax – moving to a flat rate income tax, a true universal credit, a property tax and a progressive sales tax.

    • Alastair Cunningham

      It’s a little bit depressing that your two entirely reasonable comments have been rated negatively. I don’t agree with all that was in them but they were based on analysis, not ideology and weren’t frothing with hostility towards the article author.

  • Daniel Maris

    We need a Plan C –

    1. Reduce welfare dependency. A two child maximum for child benefit should be introduced from now on (new births). Bring in a legal duty for people to support themselves unless unable to do so. Provide workfare for those who cannot find jobs otherwise.

    2. Increase tax on the wealthy – mansion tax, plus increased income tax.

    3. End mass immigration. A range of measures will be required. This help with the squeeze on per capita GDP.

    4. Forget banking and financial – refocus on manufacturing.

  • TomTom

    Of course immigration should be liberalised. NO MORE unskilled labour should be admitted. Only those who match a Skills List in short supply and whose job is advertised for 6 weeks in specialist employment sites should be eligible for a Work Visa. It is so easy to liberalise Immigration and I simply cannot understand why they let people enter and wallow on Benefits. There is nowhere on earth as rewarding for the Unskilled as the UK and few places as Unrewarding for the Technically Skilled.

    Osborne cannot have a Plan B because that would require Re-Engineering The State and telling one generation they are paying for Pensions of Retired and they will never see a pension themselves. The Pay-As-You-Go System is a fraud and the largest part of the Welfare Budget is State Pensions. National Bankruptcy is temporarily averted by QE expropriating Savings and destroying Incentives as demographics age as in Japan. The two oldest populations in the OECD are Germany and Japan

  • HooksLaw

    Preposterous rubbish from a former speech writer for Gordon Brown. This man should emigrate to the South Pole in disgrace and not be polluting the pages of the Spectator with his self serving biased clap trap.
    We had growth under the Brown years but deficits went up, so it is an act of gross self serving dissembling to pretend that we need more spending now.

    Portes has form as a biased partisan

    • HooksLaw

      PS – the more you read this self serving rubbish the more you realise why we were landed in this mess in the first place.
      The govt have announced numerous measures to improve growth, it published them soon after it came to power.
      But that is quite separate from bringing spending back to what the economy can afford in the long term.

    • Dimoto

      I guess Portes arrived hot-foot from listening to his master the slightly deranged Krugman at the LSE. Perhaps he can explain why Darling/Balls hid an additional £38B of deficit, while he’s at it ? (see DT financial section today).

    • j.portes

      Interesting. Leaving aside the abuse, is it your view then that someone who, as a non-political civil servant, serves as Speechwriter to the Chancellor, they are ipso facto biased in favour of the political party that Chancellor belongs to?

      • Dimoto

        When you parrot the Ballsonomics lines so word-perfectly, what other conclusion should we draw ?

        • David Ward

          Portes was speechwriter to Norman Lamont.

          • ToryOAP

            If it walks like a Brown, talks like a Brown or thinks like a Brown, it’s either Balls, Krugman, or Mr Portes. Anyone who defends, or wishes to return to, the madness of the Brown/Balls era of unfunded spending has nothing to say that I want to hear.

            • Alastair Cunningham

              You comment is interesting because the only tangible thing it reveals is that you are happy to be guided by ideology rather than listen to both sides of the debate.

              • ToryOAP

                Your comments are interesting because the display exactly what we expect from a troll.

                • Alastair Cunningham

                  I suppose at least you’re illustrating that age isn’t a guarantor of maturity OAP. I want to talk about the issues with people who disagree with me to try to learn something rather than reinforce my prejudice by associating only with like-minded true believers. The comments here are, on balance, just as bad as at The Guardian or New Statesman.

      • ToryOAP

        In a word, yes.

  • Baron

    No plan would have worked because of the Euro uncertainty, that’s the key culprit holding back our economic growth, who in his right mind would want to invest then face a meltdown if the Euro falls apart, ha? There’s plenty of cash around, the corporate sector here sits on near £1.0 trillion, the QE pumped in £375bn, put together it’s near the UK annual GDP, but the money’s not reaching the productive cum consuming parts of the economy, companies do not invest, consumers do not borrow and spend, it’s all wait for Europe to make a move – either ahead with a full fiscal integration, or for a break up of the pan European dream.

    It cannot take long for either to hit us, it will be only then, after the air has cleared, that we can grow the economy again.

    • Alastair Cunningham

      You’re probably right that lack of certainty as a result of the Euro crisis is playing a huge role, but if you look at business survey data it shows clearly that this is now a low demand led recession. That is, companies don’t invest their £1.0 trillion because there is no demand for increased output. Consumer survey data indicates that consumers are not being significantly constrained in their spending because of fears of Euro meltdown, they are constrained because they have large debts and don’t have the ready money to spend, access to loans, and, in a period of recession, job security. Europe is part of the story, but it is not The Story.

  • Dogsnob

    “As long as the UK policy debate focuses on immigration as a threat to be minimised, rather than as a potential driver of growth and innovation, then the UK will not be ‘open for business’.”
    What debate? Three party conferences recently and not an ‘i’ word in any of the media coverage.
    How long are we to have this mantra re-foisted on us from the Spectator stable of nags? Essentially, you make a racist assertion, as by definition, the British race is, in your view, irretrievably inferior.
    Are you seriously suggesting that a nation of some 60 millions, with the determination of a strong leadership, could not put into place the measures that would lead people back into the workplace and ready and able to ‘do business’?
    If your answer is yes, then please tell us the genetic code which all these foreigners have and which we, the lesser British race are lacking.
    Don’t bother with all that ‘lazy, don’t want to work’ crap. That has been allowed to happen by a slovenly cycle of leftist liberal pandering and Tory short term greed; and would be swept away by the strong leadership mentioned above.

    • DAniel Maris

      Absolutely. We need some facts on the costs of immigration including all those hidden costs from increased health costs due to cousin marraige, FGM, and greater genetics disposition to diabetes etc., the costs of coping with people, including children, who do not have English as a first home lanuage, the costs of welfare provision, especially for low paid migrant workers, the cost of dealing with the raised terror threat, etc.

      We should have a basic moritaorium on mass immigration as a national emergency until a Royal Commission headed by a credible figure like Sir Andrew Green can report back with a proper analysis and serious policy recommendations.

      • Alastair Cunningham

        The facts are there if you wish to look for them: skilled immigrants are a huge asset to the economy and pay for themselves many times over. The data is more mixed for unskilled immigration but that is not what is being suggested in the article. I fear though that, by the sounds of things, you’d probably dismiss anything that didn’t conform to your established ideology. I could be wrong though.

        • Dogsnob

          There are none of us immune from our own ‘established ideology Alastair. Yours seems to be content with the sweeping generalisations you offer. In your defence, you do temper your claims by hinting at the ‘more mixed’ – such delicacy – effect we incur through unskilled immigration. Regardless of what this article is arguing, therein lies the problem which exercises many: why are we allowing even one unskilled person into a country of some 2 and a half million unemployed? Do we really need more aliens loitering in our streets and claiming welfare?

          • Alastair Cunningham

            Haha. Well I consider myself more ideologically immune than most I guess. I was a scientist once so I have a soft spot for evaluating evidence without presumption and also looking for evidence that disproves my thesis.

            There are a few economic facts about immigrants that are often overlooked. 1) The vast majority come as adults and so do not tax the exchequer for education costs meaning that they are a net asset to the governments bottom line assuming that they do not disproportionately claim benefits. 2) Research using the Job Seekers Allowance register shows that immigration had no overall effect on the levels of unemployment, although it did depress low skilled wages slightly. 3) The DWP’s own report indicates that 17% of all British nationals receive benefits compared with almost 7% of all those classed as non-UK nationals when they first arrived in the UK. So we can see the immigrants are not a disproportionate drag and bring in more money than they detract.

            There are other issues with immigration of course, but in purely economic terms they are an asset.

  • Archimedes

    Why does the UK need deregulation of immigration? We have very high immigration as it is, and that will not last forever. When it begins to fall, the population will age. When the population ages, a couple of problems with pensions and the sustainability of public services might crop up. Why on earth would you want to exacerbate the issue? In case you are unaware, immigration is not a sustainable growth agenda.

    How much do you really believe the UK has suffered from fiscal consolidation? Are you blaming the entire loss of growth on it? What are you calculating the multiplier at – four or something?

    • TomTom

      He probably wants Slavery just as Brazil and the US had relaxed immigration to pick cotton and grow coffee

    • Alastair Cunningham

      From his more serious writing I can tell you that he calculates the multiplier at something like 1.2 – 1.5 in line with the IMF, which is hardly a font of left wing ideology and policy. It was reckoned by Treasury estimates to be 0.5 or less (even negative!). If you think he considers the fiscal tightening to be the sole cause of our poor growth then you are letting ideology cloud an objective reading of the article.

      • Archimedes

        No I wasn’t letting ideology cloud an objective reading of the article: I think you’ve now suggested that to every individual, that has commented on this thread, disagreeing with your own position – that, of course, does not make it true.

        If the multiplier is less than about 2.5, then more spending, or a failure to consolidate the fiscal position, is going to create a need for the government to increase taxes, or inflate away the debt at some point in the future which means a reduction in the stock of money available to private investors. If you take the position that this is going to create sustainable growth, then you have to be of the opinion that state investment is better than private sector investment: we can be as certain that that is not the case, as anything in economics.

        Let’s be clear, we are not in a position where the state needs to step in to prevent the collapse of demand and supply, and the inevitability that the two feed off, and compound each other: at worst, growth is flat, and so the simple question is whether the private sector is better able to invest, or if the public sector is better able to do that. You are talking about transferring some element of future growth to the present – a stimulus never creates it out of thin air.

        A stimulus has only one purpose: to fend off a recession. It might be necessary to run a stimulus in the future if there is some event in the Eurozone, but for now the government ought to continue with consolidation. That said, it ought to be doing that through spending cuts – it’s likely that the VAT rise did have an outsize effect on growth.

        • Alastair Cunningham

          Certainly not. I would never want any assertion to be taken without evidence, but I think certain commenters are providing quite a bit of evidence. Anyway, if you see some of my comments lower down you’ll find I applaud a commenter I disagree with for his civil tone and sober analysis of facts.

          This discussion could get quite long and technical. I’ll try to be brief. I certainly agree that state investment, with a couple of exceptions, is not as efficient as private sector investment and that in certain situations government spending crowds out private sector investment (this is not one of those situations as we are up against the ‘zero lower bound’). However, the IMF itself said ( in May that the UK was in danger of ‘hysteresis’, the risk that austerity will inflict long-run damage, and that experience of previous financial crises indicates that long-run growth potential is damaged if governments don’t limit the short-run damage it does (presumably through monetary policy, and if that fails as it currently is, fiscal stimulus) ( Further more, research indicates that poorly timed austerity policies (the papers authors point squarly at the UK) can actually have a negative effect, not just on overall growth, but also on a governments long term fiscal position as the damage to long term growth, and consequently tax receipts, outweighs the short term saved cash (annoyingly I can’t find the link right now). This would mean that, by not supporting demand now, taxes must rise more in the future than if we did.

          The point is that an economy is not a zero sum game. Government investment does not necessarily displace current or future private sector investment and can in fact bolster it.

          • Archimedes

            No, you can still crowd out private sector investment in a liquidity trap. The crowding out just happens over a longer period of time. Land is a resource. If land is taken and homes built on it by the government, then that land cannot be built on by the private sector at any point in the foreseeable future. Assuming that homes are a good use for the land, which in many cases it may not be, those homes are built by a multitude of investments, each of which hogs resources.

            If hordes of cash are being built up in the private sector, then at some point that cash will be put to use (granted it will be devalued by inflation), and it is reasonable to assume that the land taken by the public sector for building houses would have been utilised. That may have led to homes, higher quality homes or something else entirely being built: the private sector knows best.

            A liquidity trap cannot last forever: it is even less sustainable than a boom. If the public sector chooses to invest, it will have to be financed by QE or some other creative monetary policy, otherwise interest rates will shoot up further dis-incentivising private sector capital investment. QE is inflationary and therefore QE means an even lower availability of real-term funds once hoarding ceases. It stands to reason that a period of hoarding would be followed by a period of high investment. Any public sector stimulus leads to a depletion of the funds available for investment at a later date.

            Now, there is an argument that inflation would rocket at that point, given the excess amounts of cash available for investment and the consequently high demand for resources, were monetary and fiscal policy not to intervene now. However, it’s likely that the pricing mechanism has more power to control inflation than monetarists believe: the need to keep prices low would force a more innovative investment strategy on the part of the private sector, that would possibly utilise what were previously redundant resources.

            • Alastair Cunningham

              The problem is that you’re still postulating that economics is a zero sum game; that any public spending necessarily displaces private spending. The evidence, some of which I linked to above, clearly indicates that this is not the case. If our economy suffers a permanent loss of potential output thanks to the current recession (as the IMF and others have shown that it will), then the positive effects of the government not crowding out the future actions of the private sector will be more than offset by the reduction in long term GDP from extended recession and capital hoarding.

              I think what we have at the moment is a Prisoners Dilemma of sorts. It is in the best interests of the private sector as a whole to increase investment and spending as it will increase demand and put their abundant spare capital to productive use (and reduce unemployment which has social as well as economic benefits). Increasing demand in the economy will lead to higher sales and growth etc etc benefiting business and everyone else. The problem is that it is not in any one firms rational interests to act in this way as we are in a demand depressed state thanks to massive deleveraging of consumer debt and poor job and wage prospects. On top of that inflation is low and, according to the markets, likely to stay low for a long time, so the opportunity cost of hoarding cash is not as great as if it was being eaten away by inflation (this is why the US Fed has recently undertaken policies to purposefully increase long run inflation expectations, to prompt the private sector into using some of their cash… but that’s a different matter).

              In a situation in which we have a lot of spare capacity in the economy and firms are rationally disinclined to invest, it is in the economy’s long term interest to find spending from somewhere. That somewhere unfortunately has to be the government, the ‘spender of last resort’. It may be relatively poorly directed but it’s far better than the alternative and since UK borrowing costs are at historic lows the investment doesn’t have to yield much in the way of a return to be profitable in and of itself, never mind the offsetting of long term potential output loss.

              I think we are bound to disagree because I do not consider markets to be perfectly rational all the time (although I do agree that in general they are far better at allocating scarce resources) and I’m certain that all the economic evidence supports this position. I feel, possibly incorrectly, that your position is characterised by a market fundamentalism that has, at its core, a moral claim (that government spending is always bad/corrupting/freedom inhibiting) rather than an empirical one. For this reason I didn’t tackle your last paragraph.

  • anyfool

    former chief economist at the Cabinet Office,

    This man was complicit in Browns defenestration of the economy and Blair’s fingering the Tories with his insistence on untrammelled immigration of non EU immigrants.
    It now appears that Osborne has done the job of getting the economy on the right track so Portes immediately wants everything back to how they were.

    • Alastair Cunningham

      Umm, ‘getting the economy on the right track’? You don’t read or understand much macroeconomic data, do you sir? We have had a double dip recession that plenty of people predicted and currently suffer anaemic growth at best. Your comment is analysis light and doesn’t make you seem like you have any grasp of the facts, although it does indicate that you are gripped by ideology,

      • anyfool

        You missed “it now appears” you missed, “It will truly be back on track”
        It appears we had a double dip if you take OBR and ONS statistics as gospel, but they seem to make lots of errors, is that your grasp of facts, maybe those flights between New York and London in between playing poker have made you tired and emotional.
        If we were all big shots you would have no one to try your juvenile condescension on.

        • Alastair Cunningham

          What point are you trying to prove by digging around into my background?

          • Alastair Cunningham

            Oh, I hadn’t realised that for some reason my details flash up whenever someone scans over my name. That’s not ideal.

            • ToryOAP

              Go back to troll school

              • Alastair Cunningham

                A troll is someone who posts ‘inflammatory, extraneous, or off-topic messages’. By that definition you’re right, I do need to go back to troll school as my comments were none of the above.

        • Alastair Cunningham

          Anyway, I completely agree with your choice of indefinite language, fresh economic data is always published with varying confidence intervals. Having said that, the data is what we have to go on, and the confidence intervals aren’t that bad so any assertions are better couched in data than ideology, wouldn’t you agree? Apologies for condescension. It came out in response to what I saw as needless ad hominems from you. I would like to have a genuine discussion of the issues rather than a mud slinging match.

      • ToryOAP

        Troll alert

  • AnotherDaveB

    Plan A was spending cuts, it was never tried. We are already on Plan B, which is tax rises.

    HMG is already deficit spending. The UK has the forth largest budget deficit in the EU.

    • HJ777

      Exactly. The government’s deficit reduction plans consisted of tax rises in the first half of the parliament and modest spending cuts in the second half.

      So far, we have really only seen the tax rises.

      I’d have preferred that they had started with spending cuts…

    • HooksLaw

      The plan was set forth clearly 80% spending cuts 20% tax rises. The 20% VAT rate will never come down.

  • David B

    The question
    is, “Is Plan B realistic?”. Who will the
    funds be borrowed from and how will even more government borrowing affect the economy. The government have used QE to fund the
    banks, and the banks have bought government debt with those QE funds. This has sucked up the available funds in the
    market, leaving nothing for the SME sector.

    The economic
    data suggest the economy is in recession, but private sector growth, outside of
    construction, is there, unemployment is falling. The simple answer is, there is no simple
    answer! All I am sure about is that
    giving funds to the Politician and the Civil Servants to spend on their pet
    projects is not an efficient or successfully way to focus investment.

    With regard
    to regulations, a general bonfire of these would be a great move forward, but I
    bet you will get general agreement on this while finding the opposition fighting
    repeal on every specific regulation

    • Alastair Cunningham

      Nice to see a response that isn’t foaming at the mouth with ideological fervour.

      To answer your first question, the incredibly low interest on government debt shows that, if it wanted to, the government could easily find buyers for it’s bonds. With so much spare cash floating around in the business sector, who buys them isn’t really important. It’s what the government does with it that would really matter.

      I see you were making a point about ‘crowding out’ of capital thanks to QE but in reality the evidence is that it’s effects have been to push banks into holding less government debt, not more, with the displaced capital being put into business bonds and other ‘riskier’, but not very risky, assets. The problem is that, although this has swollen business coffers, the lack of demand means there is no incentive for them to invest and hire.

      There are plenty of regulations that could be trimmed as you say, but, as the article says, not productively in the labour market where we have one of the most flexible and dynamic in the OECD.

  • Shopkeeper

    Ah yes! Those ‘green shoots of recovery’ are appearing again, but
    unfortunately you have to be a tory or just totally naive to see them..
    Businesses are dying in this country and the government is doing nothing
    but make matters worse!

    • Archimedes

      Suppose you’ll soon need a new pseudonym then. Maybe it’s just the rubbish businesses that are dying…what do you want the government to do? Send the bill to us because someone can’t run their business?

      • Dogsnob

        You mean as happened with the banks?

        • TomTom

          Banks are kept alive because we let the Stagecoach Builders go to the wall and every Industrial Museum needs to keep Performing Exhibits and Banks are fine artefacts of a byegone age – they are no longer useful nor necessary

        • Dimoto

          Different government wasn’t it.

      • Alastair Cunningham

        Do you know what a demand led recession is? We’re in one. It’s when growth is held back because consumers are consolidating their debts and reducing their private spending. In such a situation good businesses as well as bad go to the wall.

        • Archimedes

          It’s highly unlikely that the UK has suffered any real contraction. Demand is constant – it’s just not growing. If that is bringing a business under, then one way or another it is because it has been run badly.

          • Alastair Cunningham

            Domestic consumer confidence and spending (and so demand) is down in real terms on pre-crisis levels (although it has perked up a little in the last quarter). In the 2008 – 2012 period we have seen commodity and energy price inflation which has squeezed the margins for small businesses while volume of sales has fallen or remained the same depending on the sector. Some of the overall slack in the economy has been picked up by increased exports thanks to a devalued sterling (the joys of having control of our own currency unlike the Euro countries). Don’t get me wrong, I believe in the creative destruction of the market just as much as anyone but it is definitely a bit harsh to say that a business that goes to the wall in the current economic climate is simply being badly run.

    • HJ777

      Of course, Lamont was proven correct when he referred to the ‘green shoots of recovery’ – the recovery from the early 90s recession was particularly strong. But then, that Tory government had the sense to run a surplus before the recession.

    • Daniel Maris

      The green shoots of recovery may be there but they have to be shared out with 500,000 new residents in this country who have been allowed in under the Government’s mass immigration policies. That’s why the ONS pointed out that mass immigration was retarding or negativising per capita GDP (the figure that really matters).

  • bloughmee

    “His Plan A – accelerated fiscal consolidation…”


    What on earth are you blathering on about here?

    This is why people like you can be safely ignored. You fantasize your own version of reality. Nothing of your fantasy was ever envisioned or acted upon. Nothing.

    And I mean, everything you posted following the quoted phrase is to be ignored. You are living in a fantastic Londonistan bubble.

    • telemachus

      IMF confirms plan A made things worse
      Plan B-call for Ed Balls: Build for Growth

    • Alastair Cunningham

      Well, if the chancellors plan was not accelerated fiscal consolidation (aka deficit reduction) then what was it pray?

  • toco10

    What utter rubbish!The recovery has already begun in the UK according to a number of rather more astute economists and this would not have been the case under Labour’s spend,spend,spend with soaring interest rates-just take time out to look at Spain and what is starting to happen in France where leftist policies are already proving to have been foolhardy.

    • Mike Barnes

      The recovery under Labour had begun in 2009.

      If it wasn’t for double dip Dave we wouldn’t need a second recovery, the first would have been enough.

      • HJ777

        Labour produced a small amount of growth from a huge rise in borrowing and spending. In fact, the value of the growth amounted to less than the extra spending.

        Doo you really think that could have continued?

        • HooksLaw

          Correct – what we had was a pre election boom, an increase in spending which resulted in a massive increase in the deficit and which was all to save labour face before the election.

          • TomTom

            So we can expect the Deficit and National Debt to be lower in 2015 than in 2010 and that is THE TEST of Osborne’s Policy

            • HJ777

              Unfortunately, that isn’t the case.

              The deficit should (I hope) be substantially lower but we will have accumulated substantial extra debt thanks to years of high deficits while the government attempts to get the deficit it inherited under control.

          • dalai guevara

            Yes, that is absolutely true HL. Everyone could see the massive pumping in of money. Now, we see a different type of money pumping continue, with what effect?

            • redmary2

              What different kind of money is that,? Monopoly money,

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