Tuesday, 26 July 2011

We can't go on like this

So as widely predicted, the UK's second quarter growth performance was pretty anaemic. We've seen just about no economic growth since last autumn. It's a gloomy outcome and, although the economy will almost certainly pick up a bit later in the year, there are many more poor numbers to come before we're out of the woods.

Yes, there are reasons for the slowdown between March and the end of June. There were lots of holidays. Nice weather during a barbecue spring. The Japanese tsunami. Financial uncertainty. But it's noticeable that this time, unlike his reaction when the economy began to stall amidst last winter's snowstorms, Chancellor George Osborne (above) has refrained from blaming forces beyond his control. To blame 'events' is (often literally) like blaming the weather for getting wet. One is bound to ask: why didn't you buy an umbrella? Or refrain from going out in the rain? Why didn't you do something different?

In this case the question would become: why did you talk the economy down so much, why did you announce so many cuts to government spending, and why did you raise taxes in the shape of a VAT hike? Why did you leave us so exposed?

Answer: politics. The incoming government has every incentive to say 'Labour's left us in a mess, everything's terrible, we have to cut hard and fast'. And in time for the economy to recover in time for the next election. It was a strategic decision, explaining why No. 10 and the Prime Minister are so desperate to restart the long recovery as soon as possible. The cracks between Nos. 10 and 11 are already starting to show - always a bad sign for any government.

Anyway. We now need a Plan B all the more desperately - as some of us have been saying for many months. Some commentators are talking about quick banking reform to free up credit; rapid infrastructure spending, for instance on high-speed broadband; or perhaps a National Insurance holiday for younger workers, among whom unemployment is now frighteningly high. Others, from Right to liberal Left, have been suggesting tax cuts. Interventionist industrial policy is back on a lot of agendas, and not just among the usual suspects.

But it'll all look like a massive, quick, panicky U-turn. And it'll raise that question again, just a few months after tax rises and spending cuts were all the rage: why did you squeeze so hard, so fast? Why did you do it, George? Politically, it'd be a disaster - a Napoleon-retreats-from-Moscow moment on a par with the Conservatives' U-turn after the 1959 general election, when boom and tax cuts quickly turned to bust and tax rises. That government eventually left office in some disarray, by the way. No wonder Mr Osborne is choosing to tough it out and hold his (and our) feet to the fire.

One thing's becoming increasingly clear: we might all just have to ignore the politics. We can't go on like this.