Tory yarns on economy carry grave risks for UK


George Osborne said in 2010 that he would eliminate the structural deficit by 2015; it now stands at £92bn. His latest yarn (Let the cuts begin, 21 May) is that he will eliminate it by 2017-18. Fat chance. According to the Treasury red book accompanying his April 2015 budget (p22), the deficit reduced from £97.3bn in 2013-14 by just £7bn to an expected £90.2bn in 2014-15. According to the same table, Osborne now expects/hopes/wishes the deficit to reduce by £15bn this year, £36bn the next year, £27bn the year after that, and a further £17bn in the year after that. Is that remotely credible or just another yarn to keep people quiescent while the deficit threshing machine cranks up into top gear?

Osborne has kicked off with an immediate £30bn cuts target. Maybe he can get away with £13bn cuts to policing, the courts, the military and prisons, but there is a serious and rising risk of explosive consequences all round. His proposed £12bn welfare cuts to carers’ allowances, disability benefits, child benefit, industrial injury benefits and tax credits will hit some of the most sensitive sections of British society, including millions in in-work poverty, and like Thatcher’s poll tax will eventually trigger a grassroots rebellion. His £5bn savings on tax avoidance is fantasy: he’s never achieved that in five years of telling us he’s been cracking down on this.

Nor do Osborne’s other vainglorious boasts stand up. He claims he’s halved the deficit since 2009-10. He hasn’t. The deficit peaked that year at £157bn, but given that budgets take 12-18 months to work their way through the economy, Alistair Darling in his two last expansionary budgets had reduced the deficit to £118bn by 2011-12, a cut of nearly £40bn in two years. Since then Osborne’s austerity budgets have reduced the deficit by only £26bn in three years. At that rate it would take 10 years to eliminate the deficit.

But he won’t even make the 10 year timetable. In the last three quarterly figures for the economy, the growth rate has plummeted by two-thirds to just 0.3%. If Osborne forces through his cuts targets, growth will collapse, and without this time the adventitious halving of the international oil price, the British economy is at serious risk of a third recession.
Michael Meacher MP
Labour, Oldham West and Royton

Over the last century, it has often been Tory mishandling of the economy that has got us into trouble. A constant theme has been playing bulldog with the pound: Churchill putting us back on the gold standard at an overvalued rate and making us uncompetitive with an already weakened economy; Thatcher and Geoffrey Howe having the pound and interest rates up too high in the early 80s and squeezing our manufacturing; Major repeating Churchill and putting us into the ERM in 1990 at an overvalued rate (it needs to be remembered that most other countries in that system survived their stay); the Heath and “Barber boom” of 70-74, with its prequel to Thatcher via housing fever and cheap credit; and then of course the full-blown housing and cheap credit fever of Thatcher, along with Lawson’s deregulation of financial services, which led to the bursting of that bubble in 1990 and the second massive recession of the decade. This was repeated by New Labour in the run-up to 2007 but it was a Labour party reading from the Thatcherite/Lawsonite textbook.

Before the second world war there was usually an orthodoxy of balanced budgets, sound money, the gold standard and free trade. Admittedly, this was endorsed not only by the Tory Eric Campbell Geddes but also the Labour man Philip Snowden in the 30s. Bringing Geddes into the cabinet was apparently an early example of the belief that businessmen can run a national economy like a business. These people had not yet absorbed Keynes on what to do and not to do in a downturn but George Osborne has no such excuse. You don’t impose drastic austerity all at once. You don’t impose it until the economy is robust enough to bear it. And you impose the cuts on those who can pay for them rather than those who can’t. Labour has lost control of the narrative and whoever comes in needs to recognise the narrative and bring a megaphone. We cannot afford to see our country heading any further into third world status.
David Redshaw
Gravesend, Kent

While working in the consultancy arms of a couple of major accountancy firms, I was continually struck by the fact that one English regional office seemed to have as many accountants as were present in the whole of other European countries with which I had contact (Larry Elliott, Report, 25 May). Indeed, Prem Sikka pointed out in 2009 that the UK had as many accountants as the whole of the rest of the EU, while in 2001 Bob Parker noted that, with less than 1% of the world’s population, the UK had 13% of its accountants. Somewhat depressingly, the Financial Reporting Council reported last year that the UK has continued to experience annual growth rates in numbers of accountants of around 3% in the last five to six years.

What do they all contribute? Maybe they are to blame for the tidal waves of performance measures which consume far too much of the energies of organisations, private and public, and for the dominance of short-term thinking over strategic outlook. It is certainly hard for me to think what they might directly contribute to productivity performance. In an earlier phase of concern about UK industry’s failings, Akio Morita was invited to talk about his company, Sony’s, success. In the first UK Innovation lecture, he expressed amazement that so many UK corporations were headed by accountants, whose “central concern is for statistics and figures of past performance” which made it hard for them to “reach out and grab the future”.

If “grabbing the future” rather than delight in “efficiency savings” is the way forward in improving productivity, then that way seems to be blocked by an infestation of accountants. Larry Elliott is demonstrably right about the difficulty of achieving cultural change so maybe Douglas Adams offers the only solution – send them all off to Golgafrincham along with the telephone sanitisers (I’ve not seen one of those since the 1980s).
Trevor Hart
Shipley, West Yorkshire

The UK’s “productivity puzzle” is less of a puzzle than many commentators suggest. In a service economy like the UK’s, income and productivity are in a circular relationship. What is measured as productivity is mainly what we are paid plus the profits (if any) of our employers. In times of recession and austerity it is natural that measured productivity stagnates, because incomes and profits for many businesses and social services are stagnant or falling. Policymakers have chosen to spread the same amount of income over a growing workforce and larger number of businesses.

Oh, I see, “it was our fault!”, as Monty Python once said. This would seem to be the only response to the Institute of Economic Affairs report claiming that it was government regulations which allowed the banks and financial markets to engineer a financial crash of a depth and breadth not seen since the 1930s (Thatcher’s financial deregulation a myth –IEA, 25 May).

The IEA’s glib conclusion, “that markets developed more comprehensive systems of regulation … than governments”, sounds pretty unconvincing to me. But, even so, the bankers stole our money in barrowloads, they lent money they didn’t have to people who couldn’t afford to pay it back, while misselling us all PPI, fiddling Libor rates and more. Goodness knows what they would have done if we had left them alone!

And, even now, as you report (25 May), Barclays paid sole trader Jonathan Hoffman (ex-Lehman Brothers, where the financial crisis started) £170m for money he didn’t get when Lehman went under. Looks to me like we need one regulator per banker, since one per 300 doesn’t seem to be working too well.

But perhaps there is a simpler explanation: the crisis was caused by the influx of the red-bracered “masters of the universe”, such as Bob Diamond, one-time head of Barclays Capital? Untrammelled, they espoused the “greed is good” mantra, while gambling with our money to enrich themselves.

In any event, Philip Booth, the IEA’s editorial director, should read the article on Joseph Stiglitz (24 May), or preferably some of the books by him, Thomas Piketty and Paul Krugman, economists of considerable repute. He obviously needs some education on the state of capitalism today.
David Reed

Productivity growth is the big issue, but quality of the workforce is a symptom not a cause – the answer lies in better management and genuine employee involvement. All too often, employee involvement is simply equated with a being a caring employer or extending employee rights; but high-involvement management is about encouraging greater proactivity, flexibility and collaboration among workers. This is achieved through the use of practices that offer opportunities for organisational involvement, either directly – through idea-capturing schemes, problem-solving groups, team work and flexible job descriptions – or indirectly, through the disclosure of financial information, specific training for involvement, or feedback systems.

It is thus concerned with the development of broader horizons among all workers, so that they can think of better ways of doing their jobs, connect what they do with what others do, and react effectively to novel problems. The most telling aspect of organisational involvement is that it changes how people connect what they do with what others do, develop shared understandings, help each other out and learn from one another. This is just as achievable in services as in manufacturing.
Professor Stephen Wood
University of Leicester

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