Do we need a plan B? Pretty much as soon as the most recent GDP results were released, Ed Balls announced that we did. Given the economy might have shrunk by 0.5% (it is unreliable data at this point, so we don’t really know), his advice to George Osborne was predictably firm: “Get a policy for jobs and growth and do it quickly”.
But what would this policy be? If you were to ask anyone in the corporate sector what they need to help them grow, they will tell you it is low interest rates, relatively low corporation tax rates, a competitive currency, low inflation, cash-rich customers and, finally, a commitment to slash a bit of red tape.
The thing is that they’ve already got most of these – which is probably why the manufacturing sector is doing so well. And what they haven’t got isn’t really in poor Osborne’s gift to give. He can’t do anything about Ben Bernanke’s addiction to quantitative easing and hence global commodity prices, for example. He also can’t do much to deal with the crunch on the living standards of the average Briton. Both inflation and real wages in the private sector (which have fallen over the last six years) are out of his control. And it is hardly his fault that so many of us have such huge debts that we are being forced to cut back to survive.
So what are his options for ‘a policy for jobs and growth?’ The one favoured by Mr Balls would be to stop with the cuts and get on with growing the deficit and the debt for a while in the hope that government spending will somehow create real economic growth. I’m hoping we will never know what the outcome of this would be. But my guess, were Balls to prevail, is that it would be exactly the opposite of what the corporate sector would like. Think higher interest rates at best, and a sovereign-debt crisis at worst.
The nation’s deficit deniers might also like to note in passing that the supposed fall in GDP cannot possibly be blamed on government spending cuts for the simple reason that, despite the endless slasher talk, it is still going up. It has, as John Redwood likes to point out, risen 7% in cash terms since the new government took power. Note too that even Richard Lambert, outgoing director of the CBI, praised the attempt to cut the deficit this week, even as he had a go at the government for almost everything else.
If you look at it like this, Osborne’s only actual “pro-growth” possibility is to get moving with the red tape and regulation cutting. In that sense this week’s GDP shock number might turn out to be a good thing: it will give the Bank of England an excuse to keep interest rates low, of course, but it will also give the coalition – and the Lib Dems in particular – some cover to be a bit more business-friendly in their policies.