Ed Balls, the shadow chancellor, is trying to turn the state of GDP growth in the UK from a disappointment into a crisis. According to Balls, the economy is “flat-lining” and George Osborne’s policies are “choking off growth”. Are they? The headline number of 0.2% doesn’t make the economy look particularly vibrant. But if you accept what the Office for National Statistics says about the special circumstances surrounding the figure, then the growth number isn’t bad. Without the royal wedding and the Japanese earthquake, the UK economy would have grown at 0.7% in the second quarter. That’s an annual rate of 2.8%, which for a mature economy in the middle of a banking crisis is hardly to be sniffed at.
That said, we aren’t actually growing at 2.8%. So it makes sense to ask if Osborne is making mistakes. The short answer is that he is. He hasn’t got good PR; he listens to too many special pleadings when it comes to the (so far non-existent) cuts in spending; and he isn’t doing enough on the supply side. He needs to think more about how he can cut spending properly and then cut the high tax rates that are demotivating the entrepreneurial thinkers who should be driving the economy. He needs to do more about the deadening influence of the entitlement-driven welfare state. He needs to come good on his promise to cut the regulation strangling the companies he is relying on to give him growth. He might need to rethink the rules on how much capital our big banks have to hold. And he should definitely run a full review of the costs of the many carbon-reduction policies the UK has signed up to. He might even have to accept that, with growth hard to come by, there will soon be another round of quantitative easing in the works. But changing tack on the speed at which he intends to cut the deficit? That would be utter madness.
Imagine that instead of being run by George Osborne, our national finances were under Ed Balls. It would be a world in which borrowing and spending were rising even faster than they are now. The market would not be convinced that the UK was even trying to get to grips with its debt. Interest rates would be higher than they are now. The pound would surely be 10% or so lower than it is now (and it isn’t exactly an outstanding example of a strong currency as it is). That would be putting huge pressure on energy and food prices. And it would be prompting fast-rising wage claims from the public sector (where there would, no doubt, be no freeze on wages). The Consumer Price Index would be several points higher than it is now and the Bank of England would be close to being forced into a premature rise in the bank rate. That really would choke off growth. We are already suffering from stagflation (rising prices and falling living standards) in the UK. But today’s misery is nothing compared to the misery you’ll see if Balls ever gets his way.