The latest ONS Quarterly National Accounts tell a very significant story. For the media it was immediately a matter of Osborne likely not being able to provide a pre-election giveaway in a big new tax break to be announced in his Autumn Statement on 3 December. But that isn’t the real point at all. A far more significant issue is that it spells the end of Osborne’s case that austerity is necessary to cut the deficit. If the deficit starts to rise rather than fall, the case for continuing with austerity and perpetual spending cuts collapses. That is exactly where we now are, although no-one, including the Labour Party, is saying so. This is now the opportunity for Labour to say loud and clear that Osborne’s policy has hit the buffers and is now intellectually and politically bankrupt and that the alternative policy of expanding the economy, as opposed to endlessly contracting it, is now the only viable game in town.
The official figures confirm that in the first 6 months of the current tax year, from April to September 2014, government borrowing at £58bn was £5.8bn higher than in the first half of last year, when in 2010 Osborne had pledged that it would have by now continually reduced till it hit the target of zero borrowing next year. In actual fact government borrowing next year is now likely to be well over £100bn! This is not just a minor slippage, it’s a massive failure which can only be properly interpreted as an ignominious failure of current economic policy. It has happened because the squeeze on wages and household incomes has become so severe, and shows no sign of abating till at least 2020, that the government’s tax take has fallen so far short of predictions that the gap between the government’s income and expenditure has widened drastically, causing the deficit to grow and, worse still, with every expectation that it will continue to grow in future until the government are forced to change policy.
The obvious alternative is to recognise that continued austerity is self-defeating and that expanding the economy is a far more efficient and far faster way of reducing the deficit than perpetually contracting it. Public investment to fund house-building, infrastructure enhancement and greening the economy would finally kick-start the economy on a path of sustainable growth and at last after a decade of austerity would generate genuine jobs, raise wages and household incomes, and steadily pay down the deficit consistently with rising economic growth. Why on earth isn’t the Labour party shouting this from the roof-tops? It’s what people want to hear, it makes perfect economic sense, and it could well turn out to be game changer in the run-up to the election.