Despite the claims to austerity, Britain has seen nothing to compare with the cuts imposed on the Greeks or Spaniards
Is George Osborne genius or monster? Is he godsend or Satan? When he said on Monday that Britain must take another £25bn in "cuts", half of them from welfare, was he declaring a manifest truth or peddling a tissue of electioneering mendacity? The trouble is the answer must be one thing or the other. It will depend not on the answer but the answerer, on tribal membership. There was no way that Ed Balls for Labour or Nick Clegg for the Liberal Democrats would yield an inch to Osborne. As a Tory he was not necessarily wrong, just wrong tribe.
A horrible possibility is starting to dawn on Osborne's opponents. His classic election-cycle strategy – early austerity then boom as the next election approaches – might be working. His deficit and borrowing targets might be adrift and his cuts callous or chaotic, but growth has clearly returned. Politics is about ends not means. Britain's least popular man in recession could be forgiven a mild satisfaction in now giving his party at least a ghost of a chance in 2015.
I continue to believe that Osborne was wrong in his approach to the recession. Guided by City friends, he pretended to extreme austerity to maintain "credit confidence abroad", but he thereby wrecked credit confidence at home. He imposed on the economy a savage liquidity squeeze, with 20% VAT on high-street spending, with commodity prices rising and credit drying up. Osborne forced banks to build up reserves, and when he printed "new money" it was not for the public to put into circulation but for banks to save. When triple-dip recession threatened a year ago, he simply threw billions into inflating the housing market, his one successful act of monetarism.
Osborne was like his predecessor, Alistair Darling, in not calling on the intellectual muscle to challenge the City and the Bank of England as they collapsed under the twin burdens of impending bankruptcy and Sir Mervyn King. The "regrets" of departing monetary policy committee members – among them David Blanchflower, Kate Barker and Adam Posen – should enrage Britain's bankrupts and unemployed.
The poor got nothing and the bankers got billions. Yet at the same time, and contrary to political lore, Osborne did not cut public spending. In 2009, at the high point of Gordon Brown's squandermania, total government spending was £633bn. After four years of supposed "austerity" it has risen to £718bn, and in 2015 it will rise to £728bn. Even in real terms it dipped only marginally between 2011 and 2012 (by 1.5%). The British people have seen nothing to compare with the real cuts imposed on Greeks or Spaniards, or on Canadians to balance their books back in the 1990s.
Any critic wanting to portray Osborne as a "son of Gordon Brown" would have no trouble. His borrowing is exorbitant, hovering around £100bn. He has been fiscally reckless in safeguarding the NHS budget, education and overseas aid. The state pay bill was sustained at least until this year, despite a "pay freeze". The Office of National Statistics showed government workers moving ahead of private sector ones by 8% by 2012, the gap narrowing only in the past year.
This was never true under Labour. Most departments are still outspending what they did in the lavish Blair years. Even the much-abused culture budget was £6.7bn in 2012 (excluding the Olympics) against just £4.9bn in 2008.
The big loser has been local government. There have been annual cuts of up to 15% in the quarter of public spending that passes through local councils. They have borne the lion's share of the burden so as to relieve Whitehall budgets of real pain.
Not since Margaret Thatcher has "local Britain" been so abused as under this coalition. Osborne and David Cameron regard it as politically expendable territory. But the result is for a largely phoney "cuts narrative" to be overwhelmed by real cuts in day centres for the elderly, childcare, sports clubs, museums and theatres. Frontline services that people notice have truly suffered.
Behind all this lies a gigantic irony, that while Osborne's squeeze extended the recession in high-street spending and thus hit the private sector, his relative leniency towards the public sector rescued demand from even worse suffering. It was Osborne the spendthrift who nursed eventual recovery. To this extent he was more a Labour chancellor than a Tory one.
Indeed, after listening to Balls evade every question put to him this week, I realised he would have done much the same as Osborne, mistakes and all. Balls never challenged Osborne's subservience to the City and the Bank. He never questioned the liquidity squeeze or demanded risks be taken with inflation. He pretended Osborne was fiscally austere, when he must have known he was not – hence his waffling response to Osborne's remarks on welfare.
What has made Osborne an easy target for his enemies – and deflected attention from what is good in his policy – have been his crude lapses into favouritism. He reduced top-rate tax for the rich. He refused to revalue expensive homes for council tax. He has given billions of pounds to wealthy land-owners for wind turbines. He continues to spend insane sums on nuclear power stations, aircraft carriers and high-speed trains. Last year he squandered cash on housing developers just when the housing market was recovering. He thus played to Balls's one strong suit, that Osborne's economics are "unfair".
This should still not affect the validity of Osborne's basic message, that Britain's debts are cripplingly expensive and will get more so as interest rates rise. While they could be ignored in recession, they must be tackled in recovery.
As Keynes said: "The boom not the slump is the right time for austerity." Almost all independent opinion – on Monday, from the Institute of Fiscal Studies – accepts that £25bn of further cuts is a minimum to begin to bring down the debt burden by 2018. Some cuts in welfare obligations are unavoidable to achieve it.
However such cuts are dressed up, there really should be a degree of consensus on a prudent path for Britain from a terrible recession to the uplands of stable growth. As it is, this week's debate on the economy has been near illiterate. There was no argument, just tribal warfare.
Economic policyEconomic growth (GDP)EconomicsGeorge OsborneAusterityConservativesLiberal-Conservative coalitionLabourSimon Jenkinstheguardian.com © 2014 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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