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Osborne still doesn’t get it

Plan A has certainly been junked. But of course in the classical political tradition that the Government never faces up to an error, we shall not be offered on Tuesday an admission of crass folly that has dragged Britain down from a recovery of growth in mid 2010 to a double-dip slump now which will push unemployment towards 3 million, freeze incomes for a decade, and postpone any economic revival till at least 2017.

The Autumn Statement tomorrow will announce a series of new intiatives which clearly break with the ideological rigidity that a massive public expenditure squeeze will generate a private investment boom, fire up exports, and offset public sector job losses with private sector job increases (i.e. Plan A has failed). But the tragedy for Britain is that Osborne cannot, or won’t, accept the logic of his position and grasp the only alternative that will really work.

The outline of the Statement is already apparent. A £10bn loan-underwriting scheme will be proposed to increase lending to industry, but it will carry a big insurance premium, and the take-up is likely to be trivial. An underwriting of mortgages has already been announced to help first-time buyers cope with the very large deposits now being demanded, but it is till unlikely to tempt many new buyers into a housing market beset by the squeeze on incomes and jobs. An increase in apprenticeships is being offered, but a large segment is being taken up by oder adult workers.

The plans to help the million young jobless are a recognition that the Government was wrong to abolish Labour’s Future Jobs Fund, but the new proposals are only a slimmed-down cut-price version of the original. And the credit easing plan to feed £15bn into lending to SMEs will only work if the banks cooperate, which they have not so far done via quantitative easing and Project Merlin.

However, though these are all tentative steps in the right direction, they suffer from two major drawbacks. The first is that the scale of them is insufficient to pull Britain out of the ever deeper spiral of decline into which the country is fast falling. The second is even more fundamental. The basic problem for the economy is now, not the flow of funding, but rather the lack of aggregate demand, and whilst that persists it is impossible via the private sector alone to kickstart a recovery.

The private sector won’t invest and increase employment until it has the confidence that it will get a profitable return from the increased goods and services it produces. Only the State has the capacity to meet, on an adequate scale, the collective demand for enhanced infrastructure, major new housebuilding, and the foundations for the new green digital economy of the future. But the Tory government in general, and Osborne in particular, is both politically and ideologically unable to grasp this and implement it.

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