It was the day that George Osborne had long dreaded. With a global economic slowdown putting paid to hopes of economic recovery, delivering the Autumn Statement was never going to be easy.
Announcing a £112 billion increase in borrowing over the next four years, along with a 1 per cent cap on public sector pay rises, and a revised growth forecast slipping from 2.5 per cent to 0.7 per cent for 2012, Britain was hardly going to react with jubilation. Labour declared the Conservatives’ economic strategy “in tatters”, while The Adam Smith Institute, a right-wing think tank, deemed the plan to underwrite 95 per cent mortgages “immoral”.
Osborne has admitted that if the Eurozone crisis continues, avoiding a recession “may prove hard”. In a bid to do so he was yesterday forced to commit to over £6bn in capital spending and had to scrap a planned 3 pence January rise in fuel tax.
He also had to put plans to increase elements of child tax credit on ice, and brought forward the rise in the state pension age from 2034 to 2026.
Countries such as Italy, Spain, and Portugal have implemented similarly austere tactics. Similarities between British and Italian austerity measures are particularly striking. Both governments have cut family tax benefits and tackled public sector pay.
The fact that the EU this month predicted growth of just 0.7 per cent for Spain in 2012, with Italy’s economy flat-lining and Portugal’s contracting by 3 per cent, calls into question the advisability of such measures. Clearly considerable cuts to government spending are not cultivating growth in today’s anaemic economic environment.
Britain’s austerity may well be a case of too much, too soon. A more expansionary fiscal policy – in other words, an increase in government
spending – could well benefit the UK.
The Chancellor has taken steps in the right direction in this respect. £1bn is to be invested in a new ‘youth contract’ offering over 400,000 young people subsidised six-month work placements, as one way of combating the level of youth unemployment which hit over one million last month.
An extra £1.2bn is to be invested in English schools generally, with money to go towards more places and free schools. Additionally, £5bn will be invested in infrastructure in a bid to improve and expand the nation’s rail network.
As well as increasing public spending, the UK could learn from ways other developed countries have sought to boost growth. Earlier in the year, the Icelandic government invested in ‘Inspired by Iceland’, a campaign to boost tourism which won a top prize at the Euro Effies Gala in Brussels.
Similarly, Ireland’s finance minister cut VAT in the tourism industry in 2010 and saw a 10 per cent rise in tourism shortly after. Poland have seen growth of over 4 per cent through successfully encouraging direct investment.
Osborne’s Autumn Statement, though often too drastic in its austerity, shows some signs of initiative. Blame cannot be thrust on to the Chancellor for a European economic crisis, but he is responsible for enforcing austerity. He, and Britain, would be best served if he paired careful austerity with a greater commitment to Keynesian spending principles.