George Osborne “took a large risk with the economy” when he imposed deep spending cuts in 2010, and the resulting slowdown may have cost 5% of GDP, or £1,500 for every man, woman and child in Britain, according to a new analysis of the coalition’s record by the National Institute of Economic and Social Research.
As the general election approaches, NIESR used its quarterly Economic Review to publish assessments of the government’s record, by a series of eminent economists.
Professor Simon Wren-Lewis, of Oxford University, argued that the deficit-cutting policy adopted in Osborne’s “emergency budget” of 2010 was unnecessarily aggressive, particularly since interest rates were already close to zero, making it hard for the Bank of England to offset the slowdown that followed.
“The delay in the UK recovery over the first part of the coalition government’s term is at least in part a result of the government’s fiscal decisions”. The final cost will not be clear for some time, he argued, but, “measured against the scale of how much governments can influence the welfare of its citizens in peacetime, it is likely to be a large cost”.
Using the independent Office for Budget Responsibilities estimates, he argued that GDP may have been reduced by up to 5%, or £1,500 per head.
Scrutinising the government’s reforms to so-called “supply-side” policies such as planning and infrastructure, economic historian Professor Nick Crafts said despite the rhetoric about radical reform, “I think the story is one much more of continuity than change”.
He added that while the government’s much-vaunted industrial strategy may bear fruit in the medium-term, for now, “there is as yet no sign of an upturn in manufacturing’s share of economic activitiy and it is difficult to think of a credible scenario in which it could occur”. However, he rejects the idea of “secular stagnation” – the suggestion that weak productivity growth in developed economies could lead to a prolonged period of anaemic growth.
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