The British Chancellor’s autumn statement on the economy and public finances was not expected to be a rosy one. In the context of a potentially devastating Eurozone crash, the markets could have used even the faintest trace of optimism. It was certainly not forthcoming. George Osborne broke the news to MPs that the UK economy was now forecast to grow by just 0.9% this year, significantly less than the previous estimate of 1.7% that was made in March. The picture is even gloomier for next year, as forecasts for growth in 2012 were slashed by nearly 2%. Ironically, the downgrading of growth forecasts is the last thing the country needs to get growth moving.
To add to the injury, he announced that the estimated number of public sector jobs that will be lost by 2017 has been revised upwards, from 400,000 to 710,000. As if this news weren’t bleak enough for public sector workers, he further revealed that the pay rises they will receive would be no more than 1% over the next 2 years. On the eve of serious strike action nationwide, this is tantamount to waving a red rag in the face of the bull of public sector employees.
Big fiscal announcements on tax and spending changes tend to be saved for the budget in March, but there were some noteworthy introductions in the autumn statement. These include a £20bn national loan guarantee scheme for small businesses, a £40bn ‘credit easing’ scheme to underwrite bank loans to small businesses and plans for £5bn spending on big infrastructure projects over three years – with 35 road and rail schemes identified. This is on top of a £400m fund to kick start housing projects, an extended business rate holiday for small firms and an extra £1.2bn for schools in England.
But despite these spending proposals, impressive as they may be, the autumn statement has made one thing alarmingly clear: Osborne’s plan A for the economy is not working. The downward revision of forecasts and announcement of depressing economic data, on both the growth and unemployment side, reminds us that what public spending is going ahead is proving to be ineffective. Maybe this is why forecasts of borrowing were revised skywards in the statement. It illustrated a quite embarrassing error in judgment to reveal that the UK government has borrowed £100 billion more than the Chancellor planned last year.
Osborne insisted that the Eurozone crisis, a hike in global commodity prices and a new assessment of the depth of the UK’s economic bust all played their part in explaining these dire forecasts. Basically, anything that is not government management of the economy is to blame. True, there is no economic panacea available to them. But this will not stop a growing discontent with using such factors as concern over the fate of the Eurozone to cover for more unpopular austerity measures.
The fact that both borrowing and unemployment are higher than anticipated indicates that the government continues to tread an economic middle ground. It seems seriously committed neither to significantly cutting the deficit, nor to maintaining substantial growth. They have discarded two obvious options open to them. They could endeavor to really get borrowing under control in the here and now, accepting the pain of austerity in order to alleviate the risk of carrying huge public debts. Alternatively, they could allow high levels of debt to persist for what may turn out to be decades, but lessen the pain of the recession by continuing to generate growth by public investment. Basically, they have the ability to choose between more growth with more debt, and lower growth with lower debt.
The problem is that both of these paths are politically unpopular, so they have essentially chosen a road that lies between the two extremes. The result of this, in the terms that Ed Balls used in his reply to the statement, is that we are feeling the pain of austerity measures with none of the gain.