Contrary to Osborne’s claims, the central economic problem in Britain today is not indebtedness, it is lack of demand. If Osborne’s speech yesterday was the clothing by which he presents his future policy over the next year, it would scarcely cover his nakedness. There is nothing there that deals remotely adequately with the only issue that matters now in the British economy – growth. The one proposal that purports to deal with this – credit easing (not his idea, but that of Adam Posen, the former member of the Bank of England’s Monetary Policy Committee) – won’t work because it deals with liquidity, not demand. Yes, pumping our money directly to businesses is better than quantitative easing which banks purloin for themselves rather than lending to companies, but it’s still no more effective than pushing a piece of string. What is needed is a strong pull at the other end which can only be provided by rising aggregate demand.
It’s not as though there’s a desperate shortage of money in business, at least in the big companies. The truth is the reverse, the corporate sector is awash with money. According to Treasury data, the surplus in the corporate sector has reached £64bn, i.e. companies are making annual profits of that amount more than they have been investing. The latest data shows that they are now holding cash and bank deposits worth £652bn with UK banks. So why aren’t they investing? As Clinton said, ‘It’s the economy, stupid’ – there’s no demand in the economy to justify fresh investment.
Instead, in the thinnest speech for decades, Osborne only offers a spiteful chopping back of employment rights, already the weakest in Europe. He proposes to double the time before a worker can claim protestion from unfair dismissal, which simply means thatg employers will sack, or re-designate the job titles of, workers after 1 year and 11 months. And to impose big charges before workers can take their case to employment tribunals is simply stamping on elementary justice, not that that would worry Osborne.
What is so awful about the present situation is that everyone knows, including probably most Tory MPs, that Osborne’s austerity package has run into the ground, but it is being retained – however many thousands of other people suffer as a result – in order that he doesn’t lose face. His one threadbare argument for not changing course by slowing down deficit-cutting and revving up growth is that the markets wouldn’t stand for it and Britain would be worse off. He’s in a state of denial. Even his friends in the financial firmament disagree. The IMF study recently published stated in the words of the FT “that the US and UK could probably increase their public debt burden by another 50% of GDP beyond projected 2015 levels without triggering a crisis”. Osborne has nowhere to hide except his insouciance and arrogance.