Has the Government Helped or Hindered the Economic Recovery?
March 18, 2014
Mark was asked by Maitland Political to argue in favour of the proposition that the government has helped Britain’s economic recovery. His contribution to the debate is below:
In January, the government received the news it had so patiently awaited. The Office for National Statistics was able to confirm that in 2013, the UK economy had enjoyed its fastest rate of growth since 2007, expanding by 1.9%. This unmistakable signal of recovery was further boosted by IMF and OBR predictions forecasting growth of up to 2.4% for the ensuing year.
It all seemed a far cry from the troublesome Budget of March 2012 and the unremittingly gloomy forecasts in the subsequent Autumn Statement, when Chancellor George Osborne confessed that the government was set by a distance to miss its debt reduction target. Taunts of economic flatlining and persistent calls for a shift to Plan B at that time were relentless. It would have been easy to yield to this pressure. Yet the Chancellor has always recognised one thing – confidence of the markets is key if Britain is to maintain the ultra low interest rates that are, for now, so vital in keeping the economic show on the road. Understanding what those markets wanted, the government has been granted permission to take its time in fixing Britain’s problems, and to stumble on the way without more serious consequence.
In his Autumn Statement of 2010, the Chancellor had predicted that by this financial year, the government would have reduced the inherited £148 billion budget deficit to £60 billion. By contrast, it stands today closer to £111 billion. By the terms of its very raison d’etre – namely to eliminate the structural deficit within a parliament – the coalition has not only failed but failed pretty miserably. However Britain in 2014 enjoys ultra-low interest rates; unemployment is hurtling towards a rate of 7%; migrants continue to flock here for the opportunities on offer; and business investment is up 8.5% on last year. Meanwhile, in spite of doggedly and consistently higher borrowing than anticipated, the UK has been able to maintain top credit ratings in marked contrast to many of our competitors.
In short, the government has defied economy gravity and for this, it must be congratulated. While the raw numbers suggest we still have a long, long way to go before eliminating the structural deficit, the coalition has always grasped what the markets have sought from it: a clear deficit reduction plan, a commitment to sticking to it and long-term reforms to address the competitiveness problem in the British economy. In all these areas, the coalition has made strides while maintaining social cohesion.
Key to achieving its goals has been sweeping change to the political mood music. At the 2010 General Election, politicians of all stripes were content to focus debate very narrowly on how and when £6 billion of cuts should kick in. Once formed, the coalition moved very swiftly to revise Britain’s narrative, making clear in its Emergency Budget that the nation needed to change course urgently. For much of the past three years or so the British electorate has implicitly recognised that the coalition’s avowed economic plan has been the right path in response to the grisly economic circumstances. The Labour Party has conceded this too by shifting debate onto the cost of living rather than deficit reduction.
The coalition has also directed a marked change in the national mood over welfare spending, education and the remit of the state. Rather than ducking tricky issues that previous administrations had shied from, the government has tackled head-on benefits entitlements, underperforming schools and pensions reform. Meanwhile, the Prime Minister’s consistent theme that we are in a global race has invigorated pan-government efforts to attract foreign investment into key British infrastructure projects and boost British exports.
The Chancellor’s broad-brush, combative confidence and chutzpah may grate on occasion, but he understands that markets require of him the self-assured skills of an illusionist rather than a mastery of detail. It is easy to find the flaws in the coalition’s record, to point out where progress has been patchy, where policy implementation has been hashed. But the government’s long term economic plan and sense of direction have always been consistent. It is that dogged determination to reduce the deficit, coupled with a pragmatic approach to borrowing, that has provided government with the space to implement spending cuts and longer-term reforms without greater social upheaval. It is confidence in that plan that has allowed government to resist Opposition pressure to hike taxes, and given businesses faith that we are on the path to stability.
Ultimately it is only the hard work, enterprise and innovation of the private sector that can save Britain’s economy. But growth can only take place if a government provides an environment in which commerce can flourish. The real achievement of this government is to shift resolutely public attitudes away from unsustainable excess. This has unquestionably helped Britain’s nascent economic recovery.