26 July, 2012

Fixing the blame

British GDP dropped 0.7% in the last quarter, the radio waves are filled with breastbeating and ill-informed analysis, and Lord Oakeshott, a backbench LibDem peer, has called for the Chancellor George Osborne to be replaced by Vince Cable.

In my view, Osborne is far from perfect, but probably the best of a bad lot, except for those like William Hague who would be much the same. What we really need is for the media to stop allowing politicians to get away with recommending solutions which involve more government spending. On this, Labour's Shadow Chancellor Ed Balls is like a stuck record. And he's wrong.

Britain already has a bloated state, which has been built up on  borrowings which have reached the level of insanity. Even though we have record low interest rates, we spend just under £50bn a year in interest. Even after the 'savage cuts', 'too far, too fast' as Mr. Balls would say, we are spending, in real terms, the same as in 2007/8.

Osborne's plan was this: if he could be the first European Finance Minister to make cuts he would get a reputation for prudence and he wouldn't need to cut so much. In fact, he's hardly cut at all: current spending, even in real terms, is higher than in 2008/9 or any previous year. As for what cuts there have been, Osborne wanted to make them as painless as possible, keeping the LibDems on board; and so instead of cutting current expenditure, he cut public investment, which at £26.6bn is around half what it was when they came to office.

So the Osborne strategy was minimal cuts, making savings with lower investment, relying on growth in the economy to drag us along. I said at the time that I thought it a mistaken policy, because we needed desperately to reduce the size of the State: we needed to cut much, much further, not on welfare, which would be impossible, but on the myriad other claims on the taxpayer's purse. What was certainly not wrong with the plan was cutting too much.

It started well, with 800,000 new private sector jobs, vastly outnumbering the couple of hundred thousand lost in the public sector. What Osborne was not anticipating was Europe.

When we joined the EEC we traded with the whole world, a relic of our once having been the world's premier maritime nation. After 1973, the EEC (now the EU) pursued a policy of 'Fortress Europe', putting tariffs on imports from abroad. In particular, in going along with this, we hurt the Commonwealth, the old Empire. After a while our principal trading partner, for imports as well as exports, was Europe, as the Eurofanatics had intended. Now Europe is in trouble - I once described our policies as 'holding on to the coat tails of a man falling back on top of you'. The Commonwealth, by contrast, is doing well, growing at a much faster rate, and that is where we need to redirect our energies. I shall deal with rebalancing of the economy in a later post this month.

What Osborne could not have guessed, and nor did anybody else, myself included, was the incredible dithering of Merkel, Sarkozy and the rest. When it was obvious, two and a half years ago, that Greece needed to leave the euro, instead of kicking them out in order to save the rest, they put tiny bandages on a massive wound and the problem is still ticking over to this day. In addition Spain is now going under, Italy not far behind, and even Germany has been threatened with a downgrade by the ratings agencies.

Europe, our main trading partner because of the insane British Foreign Office policy since 1975, is going under, and dragging Britain down with it. The reason is, as I have mentioned before, that the euro is a political manoeuvre - it  never had any basis in economics - and they are loathe to look like idiots in abandoning it. And the Eurofanatics aren't just in Brussels: the Foreign Office, which I believe should be closed in the public interest, is crawling with them.

Osborne could not have known that it would come to a mass European suicide - I, an ultra sceptic didn't guess they wold be so stupid - and cannot be blamed for it. But the result is that our export markets are depressed just when they were supposed to be showing the growth that would pull us out of the mire.

Osborne must make stronger cuts, and use the money saved to reduce taxes on people and on businesses, and he must steer the British economy away from the sinking ship across the channel.

Let's carry on with the same captain, only more determined to hold his course. 

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