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Osborne should lengthen debt repayment period

AUSTERITY feels like the new normal.

Just two years ago the Coalition sold the idea of short, sharp cuts followed by a bounce-back in 2012. The other part of this narrative was that a sprawling public sector needed to be hacked back so that private employment could blossom. Where did it get us? Yesterday's UK industrial production figures are down 3% on last year. Meanwhile, new business start-ups in Scotland are 16% down on the previous quarter and 12% behind the same quarter last year.

George Osborne admitted in Wednesday's Autumn Statement that unemployment will rise for the next two years and, though he boasts of 1,250,000 new jobs being created, many are low-paid, part-time and insecure, leaving millions of workers trapped in poverty. The net result is a weaker economy, with a lower tax take and higher benefits bill, pushing up government borrowing. On Wednesday only anticipating the £3.5bn proceeds of 4G broadband sales spared the Chancellor's blushes on the subject of deficit reduction.

All this suggests that austerity is a disastrous strategy amid a global recession that scotches prospects of an export-led recovery. Ironically, the UK's coveted AAA credit rating – the fig leaf for pressing ahead with cut after cut – is now at risk because the brutality of those cuts, coupled with the Government's doom-laden language, have destroyed any hope of healthy growth.

A man in a deep hole should stop digging. The respected Institute for Fiscal Studies warns that the figures pencilled in by Mr Osborne this week involve making £27bn in tax rises or extra cuts in welfare and departmental budgets in the three years after 2015. It describes the impact of achieving that through departmental cuts as inconceivable. Indeed, witness how ill-equipped HMRC is to tackle tax abuse after 10,000 job cuts or how slashing posts at the Department for Transport contributed to the West Coast Mainline bid fiasco. Such cuts squander more than they save.

Further cuts in the welfare budget are similarly unpalatable, especially when half of the cash goes on the politically untouchable state pension. With millions already nearly destitute, including many families of the low-paid, only Vince Cable seemed prepared to challenge a millionaire Chancellor who equates all claimants with scroungers. Our politicians must be hearing hundreds of hard-luck stories in their surgeries. These will intensify next April when more cuts kick in just as those on the top rate get a 5% cut in income tax.

The US economy, where Barack Obama espoused fiscal stimulus, is in better shape. A more ambitious programme of public works and adopting the living wage (currently £7.45 an hour) would generate jobs, improve work incentives and leave poor families less reliant on the taxpayer for top-up benefits such as tax credits. Lengthening the debt repayment period by a year or two would not wreck the economy though it would be politically difficult because it is pretty much what Alistair Darling would have done. And why not?

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Finance

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