Is George Osborne’s ‘Plan A’ working? Well, it might if the recent upturn in growth is sustained, if inflation stays (more or less) under control and if the final reckoning for the Eurozone is put off a while longer.
That’s a lot of ifs. But it’s clearly what the Conservative leadership is betting on. Unable, or perhaps just unwilling, to present a bigger vision to the British people, Cameron and Osborne are staking everything on their undoubted ownership of Plan A and what they hope will be its vindication. Certainly, they will, at the next election, implore voters to keep taking the medicine.
Unfortunately, “yes it hurt, yes it worked” didn’t work as a campaign slogan for John Major in 1997 – and he had a much shallower recession to deal with and an export-led recovery to get the country out of it. Writing for Total Politics, Ian Mulheirn, director the Social Market Foundation, reminds us that recovery won’t be so easy this time:
So, do we abandon Plan A-for-austerity and opt instead for Plan B-for-Balls? Or should we go for the rightwing version of Plan B (a tax giveaway in place of a spending splurge)? No, none of those, says Mulheirn:
In other words, less current spending, more capital spending. This makes sense for a number of reasons. Firstly, there’s plenty of spare capacity in the construction sector, so the inflationary risk is low. Secondly, the money is more likely to stimulate growth in British industry than measures designed to ‘put more money in the pocket of the consumer’ (much of it would either be spent on imports or on repaying personal debt). Thirdly, upgrading our national infrastructure is something that needs to be done anyway – doing that work now might not reduce the national debt, but it does pay-off what one might call the country’s ‘infrastructure debt’.
But would such a move represent an endorsement of Labour’s economic policy? Hardly. After all, the decision to cut capital spending so severely was taken by the previous (Labour) government. And here’s another slap in the face for Balls:
Finally, the thing about capital spending is that it’s a lot less 'sticky' than stimulus by tax cut or current spending. Temporary tax-cuts are politically painful to reverse; take on more public sector workers and they’ll want to stay on the payroll; but if the money goes to specific, one-off projects, there’s no permanent draw on the public purse. Once the work is done, so is the spending. A boost to infrastructure investment, paid for by cuts to less productive allocations, is not only a better use of funds in the short-term, it also phases itself out over the longer-term, leaving behind a leaner set of public accounts.