THE Chancellor is keen to assure us that the recovery is on track, but the evidence says otherwise, writes Bill Jamieson
Let me get in my primal scream before George Osborne rises to give his Autumn Statement next Wednesday. If I hear the phrase “We’re on track” once more, I will seek to have him committed to an institution for his own good.
For truly nothing in our national condition can possibly be described as “on track” or “on course” or whatever euphemism is deployed to disguise a government staring at abject failure at almost every turn.
It is glaringly evident in the Chancellor’s stewardship of the economy, as we will soon learn. But rank failure is by no means confined to Mr Osborne.
According to some reports, the UK Cabinet meeting on Tuesday was a fractious affair. How could it be otherwise after hapless government ministers had sought to insist earlier in the week that the Work Programme for the long-term unemployed had notably failed to achieve the 5.5 per cent target of work placements set for it but was still – horrors – “on track”?
The acrimonious meeting was said to feature David Cameron laying into Culture Secretary Maria Miller over the slow progress on fast rural broadband (just seven local authorities out of 40 have completed the procurement process on a programme costing £530 million); George Osborne laid into Eric Pickles, who struggled to explain why one third of enterprise zones do not yet have a single occupant; the abject Work Programme with just 2.3 per cent in placements after a government spend of £436m inevitably featured; and a downbeat OECD assessment added to the gloom.
The leader column of a Right of Centre newspaper yesterday likened David Cameron to a Ted Heath in the making. This was due to a concern that he was about to open the floodgates for a drastic, money-no-object government spending “dash for growth”. I feared it might have been something else entirely: the return of angry missives over problems with the Automatic Plastic Beaker Dispenser Units.
If this is a government that still thinks it is “on track”, it needs to check carefully what railway it thinks it’s on. Economic growth and a reduction in the budget deficit – the defining twin objectives of the coalition – are quite absent. That is why I fear the worst of the “on track” rhetoric is being saved for George Osborne’s performance. It’s already being gloomily described as another “Black Wednesday” in the making. Looking at the figures in store, it’s not hard to see why.
Expect an early appearance of those euphoric stargazers, the Office for Budget Responsibility. To the Chancellor falls the woeful task of announcing that the OBR has been consistently over-optimistic in its March forecasts.
We did not have to wait long to see how far the OBR’s projections were “off target” after the Budget. Instead of its forecast increase in GDP of 0.3 per cent for the first quarter of 2012, we had a fall, thus confirming the unwelcome “double dip”.
Hard on the heels of this, the OBR’s projection for the April-June period was also found to be sprinkled with over-optimistic angel dust. If the rest of 2012 turns out as most independent forecasters expect, the economy is likely to show a fall of 0.1 per cent for the year as a whole, compared with the OBR’s March forecast of an increase of 0.8 per cent.
Public spending and fixed investment have grown faster than projected – denting the critique that public spending cuts are wholly to blame for poor economic performance. The biggest disappointment undoubtedly has been a miserable external trade performance this year. The government’s strategy of “rebalancing” the economy away from domestic demand to overseas demand (“export-led” growth) is only “on track” in this sense: it’s going backwards.
As for inflation, the Bank of England is “on course” to continue its failure to meet the 2 per cent target set for it, with the latest reading of 2.7 per cent. The likelihood is that this track record of failure will continue next year, with inflation set to run at 2.5 per cent, piling further pressure on household budgets with average earnings set to grow at 2 per cent.
As for the period ahead, in the words of Bank of England governor Sir Mervyn King: “GDP growth is more likely to be below than above its historical average rate over the entire forecast period.” Mr Osborne may thus have to announce a retreat from the OBR’s current forecast of 2 per cent growth next year. Independent forecasters see just 1 per cent.
Keeping the government on its toes will be the recent announcement by credit rating agency Moody’s that it would revisit its triple-A rating for the UK early next year, warning about the weak economy and the impact of the eurozone crisis.
As for the public finances, the description “on track” should fool no-one. Public sector net borrowing (PSNB) in the April-October period was £45.3 billion. When adjusted for the £28bn transfer of Royal Mail pension assets onto the government’s books, the underlying increase is £73.3bn, some £5bn more than for the same period in 2011. The likelihood is that the March PSNB forecast of £91.9bn (£119.9bn, ex-Royal Mail) will be well overshot – possibly by up to £12bn. “On track”? Dream on.
Very little at all for this government is currently “on course”. It is an appalling state of affairs. And it should compel the Chancellor to be far more radical in his supply-side reforms.
Among the measures he could announce on Wednesday is an immediate employers’ National Insurance holiday, as eloquently argued this week by Angus MacSween, head of Glasgow-based IT specialist Iomart. He should set out plans for a Small Business Bank, as advocated by the Federation of Small Businesses, and breathe some life into the phrase “tax simplification”. It’s long overdue.
Our situation is not beyond hope. There are flickering signs of a recovery in the housing market. Mortgage approvals and lending are inching ahead, and there was encouraging if localised news of reviving buyer interest in the past week from Scottish estate agents Savills and Rettie & Co.
And internationally there has been a distinct uplift in mood, with evidence of a burgeoning recovery in the US housing market and an agreement in the eurozone (at last) over aid to Greece. The global background is not quite so dire and financial markets are not as downcast as they were.
None of this detracts from the urgency with which the Chancellor has to act, by signalling real measures to boost business and enterprise here in the UK next week. Please spare us any more flaccid rhetoric about being “on track”. The only track we’re on at present is the road to nowhere.