The chancellor's predictions of how Britain would cope with an unprecedented round of austerity are now proven to be disastrously off-track
All sorts of reasons were offered for the news that Britain's GDP collapsed by 0.7% this spring. It was the rain, government loyalists claimed. It was all Gordon Brown's fault (still). It was the diamond jubilee and all those extra holidays. The euro crisis. The figures were wildly out. Some of these reasons are worth mentioning; but none of them are of primary importance in explaining Britain has gone from a tepid recovery to being deep in a double-dip recession – the only G20 country apart from Italy to be in this much trouble. The prime responsibility for this calamitous state of affairs must rest with George Osborne.
It is the chancellor's predictions of how Britain would cope with an unprecedented round of austerity that are now proven to be disastrously off-track. His was the choice to identify the government so closely with spending cuts that any adjustment would look like disastrous political retreat. He ploughed on with an unparalleled programme of tax rises and spending cuts even as the euro crisis escalated, the global economy stalled and countless economists (including those at the IMF) sounded warning noises. The outcome is an economy whose performance even the chancellor acknowledged as "disappointing"; but that is in reality desperately worrying – not only for the growing army of chronically unemployed, but even for Mr Osborne's officials, whose deficit reduction plans are now veering off course. And the inevitable result of all this is that the chancellor must now answer serious questions about his own judgment. The GDP figures cap a terrible four months for David Cameron's closest cabinet ally: everything from the omnishambles budget, to trying to blame the Libor-rigging scandal on Ed Balls, to steering the country into its longest double-dip recession in half a century.
For the first time in two years at Number 11, Mr Osborne now has to make the case for why he is chancellor: what he will do now that his economic blueprint of just two years ago is in tatters and, most importantly, how best he can insulate the economy from an ever-growing crisis in the eurozone.
The bedrock assumption of what we might call Osbornomics was that Labour's bloated public sector was "crowding out" private businesses. Hack at state spending and companies would have room to grow. That was the great gamble that underpinned the fiscal consolidation plans unveiled in 2010; and it has simply not paid off. Chaos in the eurozone has further blackened the outlook, but Britain's economy was already flatlining before market jitters reached Madrid and Milan. And amid the welter of bad news in the GDP report was a 5.2% slump for the construction sector – among the most domestically focused industries. A simple version of what has happened under the coalition is that a very small recovery has effectively been snuffed out by ministers first likening Britain to Greece, then talking up their austerity plans, then imposing their austerity plans. All the while, the banks refused to lend or grant non-punitive overdrafts to small businesses. It would be a brave company that pushed ahead with a massive investment programme in this environment. The £325bn that the Bank of England has chucked at the financial system has had little benefit. The chancellor's recent attempts to try stimulus on the cheap – giving banks taxpayer money to lend, underwriting infrastructure projects – are too little, too late.
The economic model inherited by the coalition was severely rickety – that is why it came apart so quickly during the banking crisis and has proven so difficult to put back together again. But the promises from Mr Cameron and Nick Clegg that they would "rebalance" the economy have come to naught: they require investment and public direction that this coalition is unwilling even to countenance. Economic conditions for Britain are unlikely drastically to improve any time soon; and Mr Osborne gives no indication of having a plan to face the coming squall.
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