Tuesday, 25 January 2011

This economic setback is Osborne's responsibility

George Osborne has finally been found out. Yesterday, Richard Lambert bemoaned the absence of any serious growth strategy in government. Today's ONS data confirmed what one instinctively felt: the economy has been contracting rather than growing. Of course, the weather in December will have had a depressing effect on some retail trade. But this setback is about much more than that. It reflects the absence of any serious effort by the government to promote growth (leaving aside Vince Cable's BRIC tours) and an utter ignorance about the knock-on effect of cuts that have already been made on the private sector.

That latter point is particularly important in the absence of the former. As soon as the coalition was elected, it set about breaking contracts and tearing up purchase orders across Whitehall. These were not contracts with their own public sector employees, but with firms in the private sector. They may have been in areas like communications, advertising or other consultancies. But they are a part of the economy, and their abandonment has caused a significant contraction in a service industry that relies on both public and private contracts. At the same time, capital projects including many school building programmes were scrapped, even though they were well advanced. That had a significant impact on the construction sector.

The issue is not whether or not those cuts should have been made, or even the size of the cuts through to 2015. Any government would have cut back on consultants, and probably slowed capital building projects. Rather it is the way in which the axe fell without warning or planning, and with little chance for those losing out to find alternative work. At the same time, there is no evidence that the private sector is yet ready to take up the slack for the much more severe cuts that will have an impact from April. The problem, in other words, is that the government has wielded the axe without thinking through the consequences or how to mitigate its reductions in public sector contracts. And, the less growth there is in the private sector, the greater the cuts they will make in the public sector to compensate for lost tax revenues. And that is why the coalition should take the blame for this contraction in the economy, and stop trying to blame the snow or the last Labour government. It is George Osborne's responsibility now.

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