Even the business lobby now recognise austerity isn’t working


by Nicola Smith    
3:11 pm - September 10th 2011

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This week brought a new wave of recognition about the poor state of the UK’s economic prospects, and the risks that austerity poses for generating the demand we need to secure the recovery.

With independent forecasts now anticipating growth of only 1.3% over the rest of the year (and the OECD predicting even less), global recovery slowing, household and business confidence falling across the UK as well as the rest of the world, and unemployment starting to rise – even stagnation is starting to look like a positive outcome.

But while many in the business lobby are starting to recognise the need for a stimulus, they are reticent to acknowledge that this could require any change in the Government’s deficit reduction strategy.

For example, in advance of the MPC’s monthly meeting the British Chambers of Commerce stated that:

Given signs of weakness in the economy, there are arguments for raising the QE programme immediately from £200bn to £250bn…the MPC cannot ignore the worsening international situation and the need to underpin business confidence.”

By the afternoon, the BCC were also calling for Government to introduce “ways of stimulating enterprise and job creation, for example adjusting business taxes, or introducing fiscal measures that encourage investment”.

Similarly, the IoD have been out in force underlining their concerns about the state of the UK’s economy, stating that:

“The downside economic risks are sufficiently great to warrant an extension in quantitative easing now, in order to avoid the risk of a double-dip recession. We already have an L-shaped economic recovery and the hit to business and consumer confidence over the summer risks a slip back into recession, which could have dire fiscal consequences. “

And the CBI are calling on the Government to “put infrastructure investment firmly at the top of its agenda”.

Business bodies are keen to see a boost in demand, have concrete proposals for how Government, as well as the Bank of England, could achieve it and are increasingly warning about the risk of a further downturn. So it’s unfortunate that none are prepared to admit that the Coalition’s fiscal policy will have any impact upon their ambitions – because the reality is that the steepest public spending cuts since WW2, increased VAT and cuts in benefits for the poorest are simply making our economy more vulnerable to the double dip that they increasingly fear.

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About the author
Nicola is the TUC's Senior Policy Officer working on a range of labour market and social welfare policy. She blogs mostly at ToUChstone.
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Story Filed Under: Blog ,Economy


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Reader comments


1. Mike Shaughnessy

ConDem Government’s Economic Recovery Do Nothing Strategy…..

http://haringeygreens.blogspot.com/2011/09/condem-governments-economic-recovery-do.html

2. Leon Wolfeson

Mike?

No, do-nothing is the governmentless Belgium. They’re doing better than we are.

3. Black Guardian

Perhaps our business ‘leaders’ might care to consult an economist before signing ludicrous letters to the Telegraph in future.

4. Frances Coppola

The calls for further QE either show spectacular ignorance of the workings of the financial system or are yet another example of special pleading by business interests. The fact is that when bank lending is very low, as it is at the moment – whether because banks don’t want to lend, or people and businesses don’t want to borrow – QE makes little or no difference. I don’t think the BoE has many weapons left at its disposal to fight economic stagnation. The ball is in the politicians’ court. Pity they’ve taken their eye off it.

5. Paul Newman

What do you mean “Even the business community” they have always wanted the Economy pumped up with demand . That does not make it a good idea .

But lets say you know best shall we . How much more in debt do you think we should be ? At the moment we are collecting 38% of GDP in taxes and spending about 50% on goodies . What would you like a 15% deficit ..16 …20 %? Do tell.
If you are arguing for tax cuts then you are right we are in desperate need of them but they have to be paid for by Public sector retrenchment.

As the Unions will,not have that we are stuck .

6. Leon Wolfeson

@4 – There’s another string to their bow yet….the MPC haven’t yet resigned.

@5 – Yea, flatline really ISN’T low enough for you.

7. Arthur Seaton

Bleakly humorous to hear the IMF henchpeople’s statement about Osborne’s slash-and-burn-the-proles tactics, which can be sumarised briefly as “Not working – but carry on. If it continues not to work, then be prepared to re-think – as long as you essentially just carry on.” Genius.

8. BCA

If there would only be an easy solution to this problem………

9. Richard

More QE will simply screw up the economy’s capital structure again. Austerity may well harm or even reverse growth in the short term but it’s necessary for a long-term recovery. I just wish Osborne and co would be more honest about this.

10. G.O.

@ Paul Newman:

“How much more in debt do you think we should be ? At the moment we are collecting 38% of GDP in taxes and spending about 50% on goodies . What would you like a 15% deficit ..16 …20 %? Do tell.”

Speaking for myself, I’d like a 0% deficit, and I’d like to get there as quickly as possible.The question is, how quickly is that? Osborne thought we could get there in just four years, but that was on the basis that his planned levels of spending cuts and tax rises were consistent with sustaining growth of around 2.5% a year throughout that period. But it’s becoming more and more obvious that they’re not. Therefore the deficit is going to stay higher for longer, which is of course a Bad Thing.

Nobody on the Left thinks we should simply be content to run a deficit of 10% + of GDP indefinitely. We just think we need to be realistic about the length of time it’s going to take to eliminate a deficit of that size, given that rapid, deep spending cuts and steep tax rises just aren’t consistent with the strong growth that has to do the lion’s share of the work.

11. Chris

What austerity? There are rumours that parts of the state sector are not getting the massive spending rises they’ve asked for, but there’s not the slightest sign of anything that could reasonably called austerity.

12. Leon Wolfeson

@11 – Really? You appear to be (again) confusing overall spending with the massive, front-loaded cuts which are devastating the basic front-line infrastructure of this country.


Reactions: Twitter, blogs
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  3. DPWF

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  4. Debbie Jolly

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  5. Andy Birss

    Business against the policies of our government (means that they are not making enough cash!) http://t.co/AJvm7G6

  6. Kate B

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