Britain has sunk back into recession, its first double-dip downturn since the 1970s.GDP unexpectedly shrank by 0.2% between January and March, following a 0.3% contraction in the fourth quarter of last year, according to the Office for National Statistics. A technical recession is defined as two or more consecutive quarters of economic decline. The figures wrongfooted City economists, who had expected a return to growth of 0.1%.
Double-dip recession a terrible blow for George Osborne
“UK government stands accused of over-cooking austerity and killing off tentative recovery that was under way two years ago.” Larry Elliott
Richard Murphy of Tax Research blog writes today:
Osborne offered us his vision two year ago. It was of “expansionary fiscal contraction”.
His argument was that the more he cut government spending the more people would spend, liberated by knowing that if he succeeded in his aim of balancing the budget tax cuts would follow, letting them repay debt they’d take on now to spend. It hasn’t happened. People who face the prospect of unemployment, increased cost for things that were previously provided by the state, lower pensions, higher cost of childcare and the uncertainty of recession have simply stop spending…..
There is only one way to restore that balance in our economy and that is for the government to spend now on the creation of new infrastructure projects, new green energy projects, on the backlog of repairs that need to be undertaken in our public sector properties, in providing services that people need, and in investing with business in our future in sectors such as non-carbon energy.
This spending will, of course, require additional funding, but there is over £2 trillion invested in pensions at present in this country with more than £900 million (or thereabouts) in the larger pension funds. In that case money seeking a proactive home on which a positive return can be paid does exist. In addition, business itself has £750 billion of cash on its balance sheets right now, none of which is being spent. It is this combined cash that has to be brought into use in our economy if we are to get out of recession and nothing George Osborne is doing will achieve that goal.
We don’t, as a result, need corporation tax cuts for big business right now: we need them to pay more tax now so that investment can take place to fund demand for their products. That gets the business cycle going again. (1)
All of this was totally predictable following George Osborne’s Comprehensive Spending Review in October 2010… as the economists reported below said at the time (3). Currently, only 88% of the cuts detailed in the CSR have been implemented, and George Osborne has suggested an additional 10 Billion may be withdrawn from Welfare.
It should be remembered that the implicit consequences of the Coalition government’s stated policies of cuts would result in less spending on public services in the UK than that of the US by 2014/15. (2)
The UK needs more than a plan B. It needs a new government committed to public investment in reducing energy needs and increasing energy production from renewables. It needs a government committed to taking back the NHS and creating living wages and living support for the disabled and long-term sick. Above all, the UK needs to tackle unemployment, particularly amongst the young.