Britain’s austerity experiment is faltering

By Nicholas Wapshott
March 28, 2012

It was the Welsh sage Alan Watkins who remarked that a budget that looked good the day it was delivered to the British Parliament was sure to look terrible a week later, and vice versa. The avalanche of new information dumped by the Treasury is simply too much to grasp at a single sitting, and governments tend to bury bad news in a welter of statistics. And so it proved with finance minister George Osborne’s budget served up last week.

The immediate headlines stressed that rich Brits would pay less income tax – down from 50 percent to 45 percent – but it only took a day before even traditional Conservative cheerleaders like the Daily Mail were condemning Osborne for funding tax breaks for bankers and billionaires by stealing from those living in retirement. The paper’s cover screamed: “Osborne picks the pockets of pensioners.”

Osborne insists he is sticking to his “Plan A” to reduce the public deficit by sharply cutting state spending by 25 percent over the five-year parliament and imposing severe austerity. Because he believes his “Plan A” is on target, all he needed was a touch on the tiller. He therefore designed his budget to be fiscally neutral – that is, for every tax cut there was a corresponding tax increase. He put up tobacco and alcohol duties and sliced a little off corporation tax.

Osborne’s broader economic experiment, however, is fast faltering. If it were a drug trial, doctors would be urgently taking patients off the snake oil and feeding them the placebo. In 2010, he inherited from Gordon Brown’s Labour government a fast-rising recovery in economic growth, but now, after two years, GDP is headed south, and Britain is teetering on the edge of a government-inspired double-dip recession. In the last quarter of last year, GDP shrank by 0.3 percent.

As predicted, “Plan A” is not working. The number of jobless is 2.67 million (8.4 percent) and rising, the highest rate for 17 years, and the cost of paying the unemployed to do nothing is soaring. Inflation is running at 3.7 percent. Most galling of all, no doubt, for Cameron and Osborne, who were rushed into taking drastic measures when Bank of England Governor Mervyn King spooked them into believing the markets would punish them if they did not tackle the deficit right away, the rating agencies Moody’s and Fitch have warned that notwithstanding the debt-reduction efforts, Britain could soon lose its AAA status.

Far from spurring the British economy to greater things, the Cameron coalition’s slash-and-scrimp policies have moved the government sector even deeper into debt. According to the latest Treasury figures, in February the current budget deficit rose to £11.1 billion. Borrowing rose to £15.2 billion. And the net public debt was £995 billion, or 63.1 percent of GDP. Critically for the coalition, even by the Treasury’s optimistic estimates, public-sector net debt as a percentage of GDP will continue to rise for another two years, maxing out at 76.3 percent just in time for Cameron to call a general election.

Debt reduction and austerity may be popular with the financial markets and Austrian economists, but British voters are fast beginning to tire of hard times. Cameron’s cry of “We’re all in this together” sounds a little hollow when he and his multimillionaire colleagues, such as Osborne – 23 of the 29 members of the Cabinet are worth more than $1.6 million – are so conspicuously not consuming the gruel they are feeding the rest of the nation. Cameron took five expensive high-profile family holidays last year, four of them abroad, all dutifully recorded in detail by Fleet Street’s finest.

The notion that there is one rule for the rich and another for the rest has been further highlighted by a pay-for-play scandal that broke last weekend in which the Conservatives’ chief fundraiser was secretly filmed by Murdoch’s Sunday Times offering tête-à-têtes with Cameron and influence over government policies for a donation of six figures or more.

The first post-budget opinion poll shows Labour surging to a 10-point lead over  Cameron’s Conservatives. Figures since the funding scandal broke put Labour a staggering 17 points clear. Since in the British parliamentary system Labour needs a mere 4 percent lead at the next election to win back Downing Street, a “Plan B” is looking more attractive by the day.

PHOTO: A video-grab image shows British Chancellor of the Exchequer George Osborne delivering the annual budget to the House of Commons in London, March 21, 2012. REUTERS/Parbul TV via Reuters TV


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Bit early for April 1st?

Posted by AMB2 | Report as abusive

This is an absurdly biased article that does not reflect the true nature of the crisis, or the reality that the Labour opposition is equally privileged, with many private school educated millionaires sitting on the shadow cabinet. They would do no better, and to suggest they would ignores ten years of erroneous decisions by their party.

Posted by aspy | Report as abusive

Osborne’s broader economic experiment, however, is fast faltering. If it were a drug trial, doctors would be urgently taking patients off the snake oil and feeding them the placebo. In 2010, he inherited from Gordon Brown’s Labour government a fast-rising recovery in economic growth

ERRRRRRRRRRRRRRRR- this is a joke?? please tell me it is?? You seem to have missed the TITANIC PINK ELEPHANT in the room – NewLieMore’s “growth” was fuelled by a MASSIVE debt binge – or had you failed to notice that???????

Posted by mgb500 | Report as abusive

Amateurs with no experience and an ideology written by Thatcher …the last time this lot were in my family and all there friends lost everything ….here we go again.

Posted by Gillyp | Report as abusive

(quote) UK is back in recession, OECD says

The OECD says UK output will decline 0.4% in the first three months of 2012 on an annualised basis. The UK is heading back into recession and will be among the slowest of the world’s largest economies to recover in the first half of this year, according to a study by the Paris-based thinktank, the OECD.

Only Italy will struggle over a longer period to return to growth, highlighting the difficult situation confronting the British government as it battles to boost confidence and get the economy back on track. mar/29/uk-back-in-recession-oecd

Posted by scythe | Report as abusive

This is journalism at its worst. It is about a serious subject, and at first glance seems like a serious piece, but Mr Wapshott does not make a single rational argument. “but British voters are fast beginning to tire of hard times….” So? Would you expect British voters to enjoy hard times? Does the comment prove anything? Does being a rich politician make your policies wrong? If Mr Wapshott has written a book about Keynes and Hayek he must know something this subject but he just writes silly platitudes. Mr Wapshott, if you have certain ideas about the wrongness of what is being done and the rightness of what should be done then why don’t you develop some logical arguments? Let me descend to the same juvenile level and ask if the answer to having grossly overspent and run up huge debts is to spend even more? I would like to think that some of us at least realise that the subject is complex and benefits from polite debate rather than slagging off the ‘other side’.

Posted by icd | Report as abusive

Yeah, perhaps Mr Wapshott should explain in greater detail how he would fund the spending binge that he proposes.

Would he rob anyone with savings yet again, through quantitive easing, or does he have a better plan?
I guess we could always default on our debts, but that would also cause a lot of short-term pain.

So far, the government is still a long way off even balancing the books, and the budget deficit is hardly narrowing. So what we’re seeing so far is really not even “austerity”, it’s just a small concession towards sensible management of the country’s accounts. Something that the Labour government should have done years ago to stop us from getting into this mess in the first place!

Posted by ActionDan | Report as abusive