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Comment: Is it time for Plan B?

14th September 2012

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The British economy is in a pretty bad state. Over two and a half million people are unemployed, prices of food, housing and travel are increasing while wages stay flat. The temporary boost in the national mood that the Olympics provided can’t mask the fact that our economy is in a double dip recession – it desperately needs a helping hand to help it reach its potential.

Not according to the coalition.

George OsborneThe government is sticking to the line it has driven since the election over two years ago - that is, reducing the deficit (the gap between how much the government spends and how much it receives in taxes) is the top priority. The massive cuts in public services might not be easy to take, but while some medicine is difficult to swallow, in the long run you know it'll help you recover sooner than if you hadn't taken it.

Furthermore, our chancellor George Osborne argues, we have no other option. Currently the government pays next to nothing to borrow money. He says we can't afford to go on a spending spree to try and stimulate economic growth because that would cause the cost of our current borrowing (to finance the deficit we have) to increase and make our situation even worse. This is the scenario facing many of the euro-zone economies such as Greece, Spain and Italy, where a mixture of austerity and high borrowing costs is leading to a vicious circle of low growth, high unemployment and a general fall in living standards.

But surely we can't just sit here and watch our economy shrivel up without doing something about it? If the UK has record low costs of borrowing, it should take advantage of that - borrow to finance infrastructure projects that will deliver jobs and benefit the economy. This is what a leading group of economists, including Nobel Prize winners and those from both sides of the political spectrum, are now urging Osborne to do. Even those who initially supported the government’s deficit reduction plan, faced with the economy as it is now, believe Osborne should change course. The medicine is killing the patient, they say - we need to implement a 'Plan B'. Recent figures even show that despite all the cuts, the government is borrowing even more, not less. This is because when more people are unemployed, the government pays out more in benefits and collects less in tax, thereby making our deficit larger and exacerbating the problem.

So why isn't Osborne changing course? A large reason is political pride. He bet the house on Plan A (deficit reduction) succeeding, and to change course now would be admitting that his way has failed. Labour would tear him to shreds. You can almost imagine the evil grin Ed Balls, the shadow chancellor, would have on his face on hearing the news that Osborne had decided to change course (the two reportedly have a deep personal dislike for each other). But one has to wonder what is more important - a politician’s integrity or the future of the British economy?

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