Peter Jones: Osborne’s worrying lack of growth

Chancellor’s speeches to their annual party conference are usually about two things – the economy and politics. George Osborne’s oration to the Conservative faithful in Birmingham yesterday was, however, nearly all politics and hardly any economy. That, I think, is reason to be worried.

The immediate concern is that, extremely oddly, the word “growth” did not feature at all in his speech. The closest he got to it was to say that the economy is “healing”, which is the latest word being used to avoid saying that “green shoots of economic spring” are detectable, the phrase that got Norman Lamont into trouble when he used it in 1991, a year before Britain fell out of the European exchange rate mechanism and interest rates rocketed.

Growth, and rising incomes and numbers of jobs, is, I would guess, pretty near the top of most people’s worry lists just now. And since the role of the UK government in steering the economy towards growth is more important now than it is in rosier times, you would think he ought to have a lot to say about it.

But we heard of only two things he hopes will stimulate growth. One was a vague promise to start developing the huge potential of shale gas which, apart from being likely to generate a lot of jobs directly, could see gas, and hence energy, prices falling quite dramatically. But that, even assuming that all the environmental objections can be overcome, is not going to happen any time soon.

The other was a dreadfully complicated-sounding scheme to encourage small businesses to grow by workers in them being encouraged, via a capital gains tax exemption, to accrue shareholdings in them in exchange for giving up certain employment rights – such as being able to sue for unfair dismissal. An interesting idea perhaps, but hardly a game-changer.

So where was the plan for growth? Three things can be said in Mr Osborne’s defence. First, this was a party conference speech, which is not the place for the kind of statement about the economy that he will make in the autumn financial statement. This, incidentally, used to be made in October, but this year will actually take place in December, which most folk regard as winter.

Second, perhaps it is the case that Mr Osborne has no more idea about what is happening to the economy than you or I do. This isn’t being flippant, but is merely stating what others have said – that the near future is highly uncertain, being dependent on no new crisis blowing up in the fragile eurozone and November’s US elections.

If so, why does he think the economy is “healing”? That’s because of an odd phenomenon – that GDP figures show that while the economy is, at best, static, employment numbers have steadily risen. There are some partial explanations for this, for example, that the amount of part-time working has increased. But that does not come close to understanding why it seems that a private sector apparently at a standstill is able to add more jobs than the public sector is shedding.

A view apparently held by Conservative ministers, who may include Mr Osborne, is that there is something wrong with the GDP figures, which are, after all, a complex statistical calculation, and the existence of some sort of error is being shown up by the employment figures, which are based on real numbers of people and real activity.

Third, that the best thing the government can do for the economy is to ensure that the public spending and borrowing background is stable and sustainable. Mr Osborne certainly sought to address that by promising to shave a further  £10 billion in welfare spending cuts and £6bn in other cuts, while adding a much vaguer hint that he is going to make the rich pay a bit more in taxes.

Whether this is either necessary or right is highly debatable. Yesterday, the Financial Times crunched through spending numbers using the methodology of the Office of Budget Responsibility (OBR) and came to the conclusion that the government is not going to meet its fiscal targets by three years.

Mr Osborne had intended to have the deficit under control and the overall national public debt reducing as a percentage of GDP by 2014-15. This, the FT reckoned is now not going to happen until 2017-18, so public spending austerity is going to have to last for another five years.

If this is what the OBR does indeed publish on the eve of the autumn statement, then Mr Osborne is in for a highly embarrassing time. Yesterday, he got his excuses in early, blaming the last Labour government, higher than expected oil prices and eurozone turbulence.

But getting debt-to-GDP ratios on an even keel does not just depend on cutting spending, it is also about growing GDP – the missing element from Mr Osborne’s speech. Maybe Mr Osborne didn’t want to mention it because he knows that by the time he makes the autumn statement, wintry third-quarter GDP figures will have been published.

Or maybe, he was more concerned that he should still be the Chancellor by then. He is, after all, beset by stories that right-wing Tory back-benchers want him replaced by William Hague, to stop all this caving in to the Liberal Democrat coalition partners. I couldn’t help thinking that his extravagant praise of Mr Hague’s stewardship of foreign policy translated as a plea he should carry on being foreign secretary.

Mr Osborne presented himself as tough on the Lib Dems (no mansion tax) and burnished his right-wing credentials by dwelling on the need to cut the welfare bill.

But he also presented himself as the sensible man in the middle – rejecting crazed right-wing libertarians who want government spending and taxes slashed, slashed and slashed again, and denouncing loony left-wingers who want him to borrow more in order, as he put it, to borrow less.

If this was his political aim, it was quite an adept performance, albeit transparently so. But the problem with being the sensible man in the middle is that it reduces the ability to reach out for radical policies that might be needed tomorrow, when the economy takes an unexpected turn for the worse.

Good solid arguments can be made for targeted tax cuts and borrowing to stimulate sections of the economy in certain circumstances – a VAT cut on home improvements financed by borrowing to stimulate construction, for example. But Mr Osborne has confined himself to his present narrow course, and that is extremely worrying.