By Tim Montgomerie
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Many economists didn't predicted the Great Recession we are currently enduring but I know someone who did – my mum. My mum is not an economist, banker or politician and truth be told she didn't spell out the course of the crunch. She didn't focus on the flaws in the tripartite regulatory system. Nor the suboptimality of the €urozone as a single currency area or the nature of subprime lending in the US housing market. She did, however, years ago make the very basic point that we were all borrowing too much – households and governments. She said it couldn't go on and she was right. More recently she's also made the very straightforward observation that debts built up over a long time won't be repaid quickly. Long-term problems can't be quick-fixed.
The Left, of course, want us to borrow even more. Last time I looked Osborne was borrowing £120 billion a year. That in anyone's book is expansionary Keynesian fiscal policy. The idea that borrowing £140 billion or £150 billion will make a big difference is nonsense. And we certainly can't afford it. Some supporters of further fiscal stimulus say Britain's national debt is not high by historical standards. That's contestable. So much debt is now off balance sheet and there's also the small matter of an ageing population that means upward pressures on borrowing are going to be enormous. My bigger argument, however is that we are not competing with history but with China and other low debt international economies. We need to cut debt so we can cut taxes on the job creators who our economy depends upon.
Back to my mum. My mum has a whole series of homely truths and not borrowing too much is only one of them. I think it would help if the Government's economic policy was built around some of them. We can't spend money we don't have. We should have a benefits system that doesn't pay more than work. We need a schools system that ensures all children have skills that will get them a job. People in the public sector shouldn't have better pay, better pensions AND more job security than those in the private sector. We need a tax system that people can understand without accountancy training. We need a range of energy sources so that we keep the lights on at an affordable price. We need roads, railways and airports that are as good as those in other countries.
The Coalition is making progress on some of these things but not all of them and, says the IoD, at glacial speed. Moreover, austerity is necessary but it's not enough. The Government has never really levelled with the public in a fireside chat sort of a way. Surprises keep hitting us, therefore, and that's bad for business confidence. The Government should have told us that this is the decade of economic rearmament. The decade of rebuilding. The decade of getting back to economic basics. Until Dr Osborne explains the nature and length of the medical treatment process and brings a few more medicines to the ailing patient this Government will not benefit from the animal spirits that this economy needs. Austerity, yes but also more homely honesty about the future and more urgency and boldness on the supply-side.