The Chancellor must stop making excuses for the continuing downturn and take steps to stimulate the economy now
Today’s GDP figures show that in the second quarter of 2012 the economy shrunk by 0.7 per cent. Taken together with the poor economic performance of the previous six months, and the stagnation of the last year, this means that our economy is now smaller than it was when the government took office.
In early 2008, when we first entered recession – a result of global financial meltdown – our economy was more than four per cent larger than it is today. Even before today’s dreadful statistics this was the slowest recovery in a century. Adjectives barely exist to describe the economic debacle of a double-dip recession that has now lasted nine months.
The last few years have brought a range of excuses for our economic difficulties. First it was the snow, then the sun, the Royal Wedding and the Jubilee. But without significant underlying economic weakness none of these factors would have had so much sway over our economic fortunes.
In the decade before the financial crash we managed to grow our economy pretty successfully despite variations in our weather patterns. In fact, the stream of recent excuses has more in common with the narratives of governments of the Great Depression than with any recent analysis of what determines economic performance.
The Chancellor continues to claim that we have no alternative to fiscal austerity; that without such rapid and sharp spending cuts the costs of our debt will become unsustainable, leading interest rates to rise and creating an even worse economic scenario. His analysis has always been that there is no viable economic alternative.
But we now have fresh evidence (which international examples have always provided) that there is. Despite economic catastrophe we can still borrow at record lows – the costs of our debt are a consequence of the damaging impact that our economic quagmire is having on wider investor confidence, not a vindication of the government’s approach.
While government services are still making a small positive contribution to growth, it’s one that is declining – and at this point in a slump should be far greater. And the significant cuts in public investment that are already underway are clearly making themselves felt on construction output, with dramatic drops in output responsible for more than half of today’s overall economic contraction. We are in desperate need of a fiscal stimulus to give us a demand injection that will restore growth, yet we have a government that is failing to see sense.
The Chancellor’s plan was developed when growth forecasts for 2012 were 28 times stronger than is currently the case (and today’s data mean they are only likely to get worse). It absolutely has to be time for a new approach. If we invest now in the infrastructure and job programmes that will help us build a stronger economic future, as well as giving the economy the much-needed boost it needs, we can start to avert further economic misery.
If we don’t, the long-term economic damage could be immeasurable. Lost capacity isn’t just economic jargon – it’s real people’s jobs and workplaces, permanently destroyed by falling output and low growth. There are already close to 2.6 million people out of work, and many more without the hours they need to make ends meet.
We’re in too much of a mess to keep playing politics with people’s lives – the Chancellor needs to admit he was wrong and act now to stop further damage.
Nicola Smith is the Trades Union Congress head of economics and social affairs