If the UK economy has contracted in the fourth quarter of 2012 when the once-only Olympic surge falls away and then again in the first quarter of the new year, then by the conventional definition Britain will have suffered an unprecedented triple-dip recession.
It is likely then that Osborne’s treasured triple-A credit status will be withdrawn by the rating agencies. All of that is bad enough, but even that is still not the main point. The real test in 2013 is whether there are real signs of serious and sustainable growth, and secondly whether there is real evidence of a re-balancing in the economy away fro finance to manufacturing. On both counts the prospects look dire.
Just how desperately growth is needed is shown by the fact that Osborne’s own forecast in his 2010 budget – that cumulative public sector net borrowing over the preiod 2011-15 was £322bn – has now been increased to a staggering £539bn, a rise of no less than £217bn, nearly all because of the failure of the economy to grow. Yet even his own OBR estimates that, despite an output gap of 3.7%, his Autumn Statement will only raise the growth rate by a paltry 0.1%.
Osborne has also failed his second test to switch from over-dependence on finance to a stronger industrial base. He promised 18 months ago with some fanfare the March of the Makers: it hasn’t happened. He has promised a £40bn guarantee for private infrastructure investment, but the basic problem is not too little credit, but rather too little demand for credit.
The latest figures show construction plummeting ominously, largely because of its heavy dependence on the public sector which Osborne is shrinking. In manufacturing the UK suffered its biggest ever deficit in traded goods – around £110bn or 7.5% of GDP. Sooner or later, unless reversed, this must lead to an almighty crash in British living standards.
So why is Osborne failing the tests he has himself set? It’s because he’s obsessed with the neoliberal ideology which forbids any public sector lead role in the economy. He is crucifying Britain on a cross of dogma. What he should be doing is (1) reinstating capital spending programmes cancelled in the drive for deficit reduction, and (2) setting up a National Investment Bank with its own portfolio of projects focused on key infrastructure and on cutting-edge technology.
He should also be rebalancing the economy by (1) requiring all STEM subjects to be enhanced in schools and all major employers to take more responsibility for on-site training, (2) incentivising the development of on-going long-term relationships between banks and their main customers like the German Mittelstand, (3) restoring the crucial supply chains broken up in the privatisations and foreign sell-offs of the Thatcher-Blair eras, and (4) the sacrifice of key industrial sectors to uninhibited acquisition in the international market – Pilkingtons, P&O, Corus, BT, O2, Smith Electronics, Cadburys, BAA, etcl – must be reversed.