Knifonomics (part 23): is Osborne a corpse?

The Knife has commented before on PWUGO – People Who Underestimate George Osborne – which has a rapidly increasing membership, it seems. I reckon Osborne’s problem is the Lib Dems, but he’s possibly keeping his powder dry on genuinely attractive and useful policies such as tax cuts, till nearer the election.

In any event, everyone seems to hate him.

However, sad though it may be, I still think that Osborne has a plan that is sort of  working, and I’m not the only one:

In political terms Osborne has become the equivalent of one of those remote Scottish islands that gets used for testing secretive and especially nasty forms of chemical weaponry; in effect the Rt Hon Member for Gruinard. The man is toxic. 50p tax. The hubristic boast that the economy “is out of the danger zone”. The clumsy attempted smear over Libor.

But is he really delivering an equally contaminated economic legacy? To judge by headlines over the last few days the answer is a resounding yes. “’Work experience Chancellor’ George Osborne urged to quit as GDP slumps” – The Independent. “George Osborne reeling as economy enters the disaster zone” – The Guardian.

Really? The “disaster zone”? Osborne’s critics, at least those on the Left, have held to a consistent narrative. Fuelled by ideological zeal, his attempts to reduce the deficit would prove catastrophically counterproductive. The cuts, delivered too far and too fast, would create rising unemployment, soaring welfare bills, plummeting tax receipts and rising debt. This would in turn lead to more savage cuts, and so the vicious cycle would continue.

But despite the apocalyptic headlines, that’s not what’s actually happening. Unemployment, contrary to all predictions, is falling. As the FT reported on Wednesday, “Total employment is up 159,000 over the six months to May. That is a faster average growth rate than the whole expansionary period between 1993 and 2008, a time when GDP growth averaged 0.8 per cent a quarter. Official employer-based surveys of recent job growth are even stronger”. At the same time, tax receipts are rising. In the second quarter VAT revenues and national insurance revenues were both significantly up on this time last year. And even last month’s OBR borrowing statistics, which set alarm bells ringing because of an unexpected monthly borrowing increase, showed an overall rise in tax revenue of four per cent to £41 billion.

Then there is the deficit. Ministers have been quietly pointing out – why they haven’t been shouting it from the rooftops isn’t wholly clear – that they have in fact already been successful in reducing the deficit by a quarter. Labour actually concedes this point, but argues that if the Coalition had just stuck to the Darling plan anyway the same reduction would have been secured, but at a higher level of growth. This is actually nonsense; the Darling plan didn’t take account of the eurozone crisis, for example. But it doesn’t really matter, because the Left’s underlying argument was that the Osborne strategy would undermine deficit reduction completely.

Here is a brilliant article on how dodgy ONS (Office of National Statistics) data potentially is, them being the people who produce the quarterly GDP figures that everyone gets excited about:

Another angle to current economic developments is provided by labour market data. Think about the implications of the following:

employment in the private sector rose by 254,000 (during the final quarter of 2011 and the first quarter of 2012);

the employment rate for all people over the age of 16 edged up from 57.8 per cent at the end of the third quarter of last year to 58.1 per cent in the three months ended May;

the number of private sector job vacancies seems to have been stable at around 370,000 since September;

total hours worked in the UK rose 2.6 per cent between the three months to September 2011 and the three months to May 2012 (hours worked per person increased 1.6 per cent over the period);

the total domestic expenditure increased 0.4 per cent in the fourth quarter of 2011 compared to the third and rose another 0.7 per cent in the first quarter of 2012; and,

market sector productivity is estimated by the ONS to have dropped 1.1 per cent in both the final quarter of last year and the opening quarter of this year.

If you only had access to the numbers above (excluding those for productivity), what conclusions about the state of the economy would you draw? Almost certainly, you would surmise that the economy is growing gently, but consistently.

None of this is to praise Osborne, but there’s still time, and if he was to follow the advice of Allister Heath in this terrific article, who knows how quickly we could recover?

Time to tell Cleggy and Vince where to go, George.

Thanks to Max Farquar

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