Does the Government have a long term economic plan?
This may seem an odd question given that Conservative MPs can barely get through a couple of sentences without speaking the phrase.
But we rarely get to hear what the Government’s long term economic plan is. This may be because the Government doesn’t really have a long term plan or, if it does, then it isn’t working.
A reasonable test of whether the Government has a working long term economic plan would be to look at what they said they’d do in 2010 and compare it to the situation today.
So what did George Osborne say he wanted to achieve when he first became Chancellor?
Back in 2010 the Government’s priorities were to eliminate the deficit, keep Britain’s AAA credit rating, and re- balance the economy.
If this didn’t happen then there were dire warnings about what would happen.
In George Osborne’s first budget he said that if the Government carried on as it was and did nothing, then in five years’ time, public sector net borrowing would be 4% of GDP in 2015. Debt would rise to 74.4% of GDP. This was the nightmare scenario. This would turn us into Greece.
The Chancellor said that by following his plan – his long term economic plan – public sector net borrowing would fall to 1.1% and debt would be 67.4% of GDP.
So how has he done? Current forecasts are for public sector net borrowing to be 4.2% of GDP and debt will be 81.1% of GDP.
In simple terms, the Government has borrowed far more – over £200bn more – than it said it would in 2010.
By the terms of George Osborne’s own economic plan, not only has he failed, but the economy has done worse than if he had done nothing at all.
Keeping our AAA credit rating was another key part of the plan. According to David Cameron it was the number one test of his Government’s economic and political credibility. He failed that test in 2013 when the UK lost its AAA credit rating for the first time since 1978.
And as for re-balancing the economy, that went out of the window when the Government started panicking about the moribund state of the economy and decided to stoke up a housing boom in 2013. Instead of building the homes we need, it has just pumped more money into the housing market, raising prices and putting the dream of home ownership even further out of reach for many.
Far from exporting our way to growth, the latest trade deficit of £34.8bn was the biggest since the Government came to power.
Growth in the economy is being fuelled by consumer spending funded by borrowing.
The fundamentals of the economy have not changed at all under this Government. They are exactly the same as they were leading up to 2008.
So on the terms the Government set for itself, it has failed. But it has also failed on the terms that matter to ordinary people – are they better off at the end of this Parliament than at the beginning?
After ignoring the fact that wages were falling behind prices for nearly the whole Parliament, the Government now trumpets the fact that, for a short time, wages have been rising faster than inflation.
But this wasn’t planned. Falling oil prices have lowered inflation. This had nothing to do with the Government. It is entirely down to Saudi Arabia flooding the market with oil for its own political and economic ends.
Under the Government’s official policy, inflation is now regarded as being so dangerously low that the Governor of the Bank of England is forced to write to George Osborne explaining what he is going to do to raise it.
Even here the Government displays only short term thinking. One thing we do know is that oil prices won’t stay low for ever. As a country we should be using the unexpected bonus we have received from the dip in oil prices to invest in de-carbonising the economy. That way, we’ll be better prepared to weather the storm when they inevitably rise.
So does the current Government have a long term economic plan? I’m not so sure it does.
A Government-inspired housing boom and debt-fuelled consumer spending supported by a lucky fall in oil prices may keep things going until the General Election, but it’s hardly the basis for creating long term prosperity for Britain.