Magazine article New Statesman (1996)

What Osborne Is Getting Wrong

Magazine article New Statesman (1996)

What Osborne Is Getting Wrong

Article excerpt

When the Conservatives and their Liberal Democrat partners took office, no one could be in any doubt about what they regarded as their central purpose. "This new coalition is founded", George Osborne said, "on an agreement to significantly accelerate the reduction in the deficit". It was, he proudly pointed out, "the very first item on the first page of the coalition agreement". Much was made of the need to secure Britain's credit rating - and when Standard and Poor's affirmed the UK's triple-A status later in 2010, Osborne proclaimed it a "vote of confidence".

But the Chancellor's attempt to eliminate the deficit in one parliament has failed - because if you cut spending and raise taxes too far and too fast, and don't have people in work and businesses succeeding, you can't get your deficit down, because your tax take falls and your benefit bill goes up.

Last month, Moody's switched its outlook on the UK's triple-A rating to "negative", citing concerns over the impact of rapid fiscal tightening on growth prospects. It's debatable whether we should be setting policy according to the dictates of credit-rating agencies who proved such a poor guide in the run-up to the financial crisis and who were quick to call for austerity measures, the consequences of which they now decry. But it was their verdict Osborne wanted to live or die by.

The longer we languish in low gear, the more permanent damage is done to our productive capacity. Around 860,000 people have been out of work for more than a year now - losing hope, motivation and skills - a huge waste in benefits today and in growth potential for the future.

As we approach next month's budget, Liberal Democrats are trying to regain support by reviving their pre-election arguments about fair taxation. But people will take this with a large pinch of salt, given that the Lib Dems put up VAT within weeks of joining the coalition - and are supporting huge cuts to tax credits for working parents. …

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