Wednesday, 5 December 2012

Just another Autumn Statement

Quaint, it may be, our weekly Prime Minister's Questions. But you can't help feel it's become a little formulaic. A re-run sketch on a slightly unimaginative sketch show. You get rosy-cheeked Ed lisping his way through accusations that the government is behind on its pledges. Well observed, Ed. Then you get rosy-cheeked Dave emphasising how useless Ed's government was and how blank Labour's idea sheet is. We got that last time, Dave.

This week, though, we got an added treat: the Chancellor's Autumn Statement. George (also rosy-cheeked) stood at the dispatch box and announced, to the Commons and the nation, that figures have worsened - but that none of it is his fault.

The opposition writhed with joyous laughter as he reasserted Britain is "on the right track" and "we're all in this together". It is surprising how much delight a party ostensibly "on our side" takes from an ailing economy and the continuing strife this means for millions.

So why the poor figures? One reason is clearly the European situation. Our regional economy and biggest market continues to flounder. Far from being unable to influence this, the UK is now seen on the continent as being the biggest troublemaker. Whilst we take a similar - if more extreme - position to other big contributors, reaching a solution to the current stalemate certainly isn't top of Britain's European agenda.

A second reason for the poor growth figures is the global slowdown. Juddering progress in the US, uncertainty in China, decade-low growth in India, the need for a new £6.7bn stimulus package in Japan, uncertainty in Brazil - none of this helps. Remember that Britain had hoped for an export-led recovery - well, we're short of buyers.

Of course, it's easy to look outside our borders for culprits. What of the core principle of the government's economic strategy: to cut state spending, increase government efficiency and thereby stave off potentially ruinous speculation on our huge debt mountain? This is a survival strategy, not a growth strategy. The Treasury are banking - irresistible - on the risk of speculators turning against Britain being more worrying than the damage done by feeble 2012 growth.

Osborne's growth strategy - principle #2 - is to create as good an environment as possible for the private sector to flourish. Judging by the OBR's announcement today that our economy has either flatlined or shrunk slightly in 2012 - the prediction is -0.1% - this isn't quite doing the job. Labour are calling for direct stimulus: infrastructure spending, especially housebuilding. Today's statement represents a tentative move in that direction.

Of course, politically, there is more to the story. Osborne knows that Britain's AAA credit rating is under threat, and will be keen to avoid a downgrade. Thus his nervousness about announcing any new spending. However, the Lib Dems are pulling the other way: what stands out in this statement - as in the last - is the effort to shield lower earners by raising the personal tax threshold to £9,440. Fantastic news for a lot of people, but it costs a lot. This offsets savings made, for example, by departmental cuts. However, whilst it's bad for the figures, it is - I would suggest - good for the long-term health of the economy and of society. But then, I'm a self-confessed Lib Dem, so I would say that.

Abroad, there does seem to be light on the horizon. China and India have made readjustments and seem to be getting back on track. There is cautious optimism in Brazil. It may be that as these markets pick up, Britain will be able to redouble its efforts at export-based recovery. If it can, it will be doing so on a more balanced economic footing. The danger, though, is that companies can't wait forever - growth begets growth; contraction begets contraction.

So, to conclude - what have we got? We have zero growth this year. We have a hostile economic environment abroad. We have a struggling Eurozone, not helped by Britain's position. We have uncertainties in all our major markets, although our exports are growing to major emerging economies. We have - the Chancellor told us proudly - saved £33bn on debt repayments due to low repayment rates. The deficit has been cut by a quarter. However, as Labour point out, lower growth means less collected tax, which offsets these savings somewhat.

Slow but sure seems to be the Chancellor's message. He's certainly half right - it's slow. But I would argue that there are good signs for the future. Much of our spending is on infrastructure, scientific research and education - all crucial for our future competitiveness. Employment figures are good, and we're avoiding the drastic measures some European governments are having to resort to. The global economy is showing hopeful signs of life. Where does that leave us? On this, at least, Osborne is clear. He'll see to the deficit - eventually. Today's stimulus announcements should breathe a bit of life into the economy. But as for long-term growth... well, that's up to us.

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