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The lesson from the US: George Osborne has wasted the last three years The lesson from the US: George Osborne has wasted the last three years
(2 months later)
Camper-vanning through New England three years ago, I was struck by the worry and fear gripping America. Business leaders and commentators saw that another "global economic hurricane" was brewing. They called loudly for government action to boost growth.Camper-vanning through New England three years ago, I was struck by the worry and fear gripping America. Business leaders and commentators saw that another "global economic hurricane" was brewing. They called loudly for government action to boost growth.
Most striking then was the contrast between US anxieties and the complacency of Britain's Conservative-led government. Events since have proved their hubris was woefully misplaced, causing huge and lasting damage to the country.Most striking then was the contrast between US anxieties and the complacency of Britain's Conservative-led government. Events since have proved their hubris was woefully misplaced, causing huge and lasting damage to the country.
Very different policies have resulted in different outcomes for the British and American economies. In the US, the combination of monetary activism and President Obama's fiscal growth plan has helped ward off global threats, strengthened the recovery, and seen a continued fall in the deficit.Very different policies have resulted in different outcomes for the British and American economies. In the US, the combination of monetary activism and President Obama's fiscal growth plan has helped ward off global threats, strengthened the recovery, and seen a continued fall in the deficit.
In Britain, following George Osborne's accelerated tax rises and spending cuts, the economy has flatlined and deficit reduction has stalled, as I feared. The US has grown more than four times faster than the UK since the autumn of 2010 and more than recovered all the output it lost following the global financial crisis, while three years of stagnation in Britain means our economy remains more than 3% below its pre-crisis peak.In Britain, following George Osborne's accelerated tax rises and spending cuts, the economy has flatlined and deficit reduction has stalled, as I feared. The US has grown more than four times faster than the UK since the autumn of 2010 and more than recovered all the output it lost following the global financial crisis, while three years of stagnation in Britain means our economy remains more than 3% below its pre-crisis peak.
This week we will finally see signs of recovery in the British economy after three wasted years. City forecasts are predicting growth of up to 0.8% for the last quarter. Any growth is both welcome and hugely overdue. But to catch up the ground we have lost on growth and the deficit since 2010, we would actually need to see growth of 1.3% a quarter for the next two years.This week we will finally see signs of recovery in the British economy after three wasted years. City forecasts are predicting growth of up to 0.8% for the last quarter. Any growth is both welcome and hugely overdue. But to catch up the ground we have lost on growth and the deficit since 2010, we would actually need to see growth of 1.3% a quarter for the next two years.
Conservative ministers will claim this modest return to growth is proof that Osborne's plan has worked. after all. This is a little like Australia's cricket team scraping a draw in the next Test and proclaiming their tour a success.Conservative ministers will claim this modest return to growth is proof that Osborne's plan has worked. after all. This is a little like Australia's cricket team scraping a draw in the next Test and proclaiming their tour a success.
The reality is that, once again, Tory complacency is misplaced. First, the UK recovery is far from secure. As the IMF warned again last week, Britain is still a long way from a strong and sustained recovery – while continuing eurozone stagnation and slowdown in emerging markets, especially China, pose real dangers ahead.The reality is that, once again, Tory complacency is misplaced. First, the UK recovery is far from secure. As the IMF warned again last week, Britain is still a long way from a strong and sustained recovery – while continuing eurozone stagnation and slowdown in emerging markets, especially China, pose real dangers ahead.
Second, there are growing signs that this nascent recovery is mainly benefiting those at the top. Bank bonuses soared to almost £4bn in April as top earners deferred their payouts to take maximum advantage of Osborne's top-rate tax cut. But most families are not seeing any recovery in their living standards, with average wages after inflation still falling; in fact, family incomes are now facing the longest squeeze since the 1870s.Second, there are growing signs that this nascent recovery is mainly benefiting those at the top. Bank bonuses soared to almost £4bn in April as top earners deferred their payouts to take maximum advantage of Osborne's top-rate tax cut. But most families are not seeing any recovery in their living standards, with average wages after inflation still falling; in fact, family incomes are now facing the longest squeeze since the 1870s.
That is why Labour is advocating a balanced plan on growth, jobs and living standards: bringing forward £10bn of infrastructure investment now, as the IMF has demanded, which could build 400,000 affordable homes and create 600,000 jobs; a compulsory jobs guarantee for young people and the long-term unemployed, which will also help get the benefits bill down; and fairer choices on deficit reduction, like cutting the winter fuel allowance for the richest pensioners, and boosting living standards with a 10p starting rate of tax for middle- and low-income families.That is why Labour is advocating a balanced plan on growth, jobs and living standards: bringing forward £10bn of infrastructure investment now, as the IMF has demanded, which could build 400,000 affordable homes and create 600,000 jobs; a compulsory jobs guarantee for young people and the long-term unemployed, which will also help get the benefits bill down; and fairer choices on deficit reduction, like cutting the winter fuel allowance for the richest pensioners, and boosting living standards with a 10p starting rate of tax for middle- and low-income families.
But I want us to go further. The Conservatives should have learned from the US in 2010. I want us to work with the US now to face the shared challenge of ensuring that economic growth is both strengthened and fairly shared. This week former US Treasury secretary Larry Summers and I will launch a transatlantic commission on inclusive prosperity to investigate what reforms our countries need to generate more high-wage jobs for the future.But I want us to go further. The Conservatives should have learned from the US in 2010. I want us to work with the US now to face the shared challenge of ensuring that economic growth is both strengthened and fairly shared. This week former US Treasury secretary Larry Summers and I will launch a transatlantic commission on inclusive prosperity to investigate what reforms our countries need to generate more high-wage jobs for the future.
Instead of complacent claims that everything is going to plan, Osborne should this week recognise that for ordinary families life is still getting harder. And with risks and uncertainties in the global economy ahead, he should finally act to secure the recovery he squandered three years ago and ensure it benefits the whole country. He cannot simply cross his fingers and hope the good weather will continue; he must act now with a One Nation economic plan.Instead of complacent claims that everything is going to plan, Osborne should this week recognise that for ordinary families life is still getting harder. And with risks and uncertainties in the global economy ahead, he should finally act to secure the recovery he squandered three years ago and ensure it benefits the whole country. He cannot simply cross his fingers and hope the good weather will continue; he must act now with a One Nation economic plan.
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