It is difficult to exaggerate the magnitude of Britain’s current economic disaster. The latest figures issued yesterday showing a 0.7% contraction in the second quarter are nothing less than momentous. The UK economy is now 4.5% below its pre-crash peak in March 2008. This is stunning for 3 reasons.
First it indicates that in the last 4 years the economy has shrunk by over £70bn, an amount equal to three-quarters of the total UK deficit. Second, it is far worse than Germany, the US and even Russia, all of which have now grown since their pre-crash peak, and worse even than Spain and Japan. Only Italy and Ireland have done worse than Britain in the EU. Third, and most seriously of all, it shows the weakest recover by far of any of the 5 deep recessions that have plagued Britain over the last century. At this point in the cycle, compared with just over 4 years from the start of the downturn, even the Great Depression of 1930-34 had given way to 2% growth – in today’s terms an increase in the size of the economy of some £60bn as opposed to the current fall of £75bn.
Whatever excuses are hurriedly brought forward to mitigate the gloom – the diamond jubilee, the rain, the eurozone – cannot conceal that the overwhelming responsibility for this crisis rests squarely with Osborne. Nobody denies that the deficit is too high and has to be dealt with, but not by applying leeches when the patient is in a terminal condition. There is certainly an argument for fiscal hawkishness, but not when the economy is contracting and that contraction is accelerating.
Osborne has made mistake after mistake – believeing against all the historical evidence that expansionary fiscal contraction would work, arguing that an inflated public sector was ‘crowding out’ private business which would automatically revive when public spending was drastically pruned back, insisting that the banks could carry on much as before, failing to make any serious effort to rebalance the economy in favour of manufacturing, and above all giving full play to his ideologically visceral prejudice against allowing the public sector to play any part in the recovery.
Osborne should do the honourable thing and resign, but of course he won’t. He is so brutally thuggish that he makes Ed Balls look positively saintly. He should be forced out, but that is such an admission of total failure of the government’s central project and such a breach in the Cameron-Osborne political dyarchy glueing together a very shaky coalition that it won’t happen, at least not yet. Not so much the captain going down with the ship as the ship, the rest of us, being pulled down to save the captain.