Andrew Thorpe-Apps warns George Osborne not to waiver from fiscal discipline.
Unemployment jumped by 70,000 in the three months to the end of February, amid the lowest growth in pay rises since 2001. The number of unemployed people reached 2.56 million, 7.9% of the population. Fitch became the second agency to strip the UK of its AAA credit rating.
All of this means that George Osborne is coming under increasing pressure – both from Labour and from sections of his own Party – to adopt a more aggressive growth strategy.
There were fears that Britain would face an unprecedented triple-dip recession. As it turned out, recent economic data for the first quarter of 2013 revealed a dip in Government borrowing and a 0.3% growth in GDP. One could almost hear the sighs of relief coming from Number 11 Downing Street.
While the economic figures may not be anything to write home about, they do show that the Government’s policies are working. Retail sales are up, manufacturing is strengthening, and car sales are at record levels. Since coming to power, the Government has cut the deficit by a third, created 1.25 million new private sector jobs, and secured a cut in the EU budget. For those who complain about the financial pain caused by ‘austerity’, a quick comparison with Ireland, Spain and Greece suggests that the situation is not so bad after all.
Polly Toynbee notes in The Guardian that the International Monetary Fund (IMF) are calling on Britain to start spending to stimulate growth. But the IMF is losing credibility fast. The organisation initially recommended an easy monetary policy. It then became an arch advocate of austerity. Yet now it has backtracked again. Rather than setting the fiscal agenda, the IMF is merely a reactionary talking shop. Christine Lagarde’s leadership must surely be called into question.
Three years ago, the Bulgarian Government forced through a substantial programme of cuts and pension reform. The country has subsequently recorded 12 consecutive quarters of economic growth. Indeed, the fasting growing EU economies – Poland, Germany, Latvia, Lithuania and Sweden – have all stuck to strict fiscal discipline. The case for austerity, therefore, is not based on abstract theoretical notions. It is grounded in clear examples and common sense.
The term ‘austerity’ is an unfortunate one. It evokes a sense of negative and painful policy making that has little concern for those facing financial hardship. A more positive phrase is ‘fiscal discipline’. Britain must learn to run a balanced budget, just as individuals must keep their household spending under control. This is necessary to turn our national deficit into a surplus and, eventually, to start whittling down the national debt. Fiscal discipline, coupled with long-term thinking and a focus on efficiency, must become engrained into our collective psyche. The days of high taxes and high Government spending should be confined to history.
That Ed Balls continues to advocate a ‘spend, spend, spend’ policy is indicative of how out of touch Labour have become. Yet it is also far from being a surprise. In the final two years of Gordon Brown’s administration, Labour went on a £1.3trillion spending spree. This came at a time when the economy was in freefall. One quango alone, Natural England, cost £442million. The Department for Environment spent £95million on an obscure ‘National Environment Enjoyment programme’. Around £1.6billion was handed to the EU to distribute to poor countries (despite the UK having its own Department for International Development). A further £1.3billion was spent on ‘reducing poverty in Asia’, the continent that was, despite the global financial crisis, still witnessing significant economic growth. Labour even found £135,000 for 28 designer sofas to create a ‘peaceful environment’ for council tax officials.
Ed Milliband rarely budges from his default position of opposing the Government at every turn. Tony Blair raised a few eyebrows by pointing this phenomenon out last week. Naturally, all Parties in Opposition tend to follow similar obstructive tactics. It would be rather dull if Labour supported the Government on every policy.
But it is disappointing that Labour have not looked back at their own history. It was Stafford Cripps, Labour’s Chancellor from 1947 to 1950, who became closely associated with austerity policies in the post-war period (he was referred to as ‘Austerity Cripps’). Cripps is credited with laying the foundations of Britain’s economic prosperity from the 1950s onwards. Although a committed socialist, he did not allow ideology to blind him from economic realities. Cripps saw that it was necessary to cut waste and improve efficiency if Britain was to compete with rising powers (then the U.S. and Soviet Russia). In many ways, the same issues confront Britain today. The country will need a streamlined, highly efficient and technology-driven economy if it is to compete with the BRIC nations.
George Osborne must not waiver from his commitment to fiscal discipline. The economic recovery may be slow, but it is underway. The financial crisis has provided Britain with an opportunity to fundamentally change its approach to economic matters. We must be conservative, think ahead, keep the budget balanced, and get Britain back to where it belongs.