The blame game over who is responsible for our dire economic state now sees the government turning on itself
What do the following have in common? Angela Merkel, cold weather, Ed Balls, Silvio Berlusconi, the wedding of William Windsor and Kate Middleton, British civil servants, Brussels bureaucrats, people concerned about global warming, employment tribunals, trade unions, banks, bank holidays, Liberal Democrats, energy prices, Gordon Brown and the world?
The answer is that they have all been deployed as excuses by members of the government for why the economy is so dire. The proliferation of alibis offered by ministers, and their inability to stick to the same one, is a symptom of increasing desperation about the unravelling of their economic strategy.
Anxiety is certainly an understandable response and panic might be a more appropriate one to the release of the latest slew of dismal economic data. Unemployment in the three months to September rose at the fastest rate in 17 years. The number of the young jobless has surged over a million, rightly stirring fears of a Generation U going from school into long-term unemployment without ever knowing work. “The lost generation charge is very dangerous for us,” says one government strategist. “That gives Labour a really good line of attack.” It is agitating ministers as unalike in so many other respects as Nick Clegg and Iain Duncan Smith. One of the odder alliances within the cabinet, they have joined forces behind the scenes to press for much more government activity to stem the flow of the young straight on to dole queues. Whatever schemes they come up with, and even if some are admirable, these will be palliatives, not cures, for the curse of youth unemployment.
There will be a very dark economic backdrop to the autumn financial statement that George Osborne delivers in less than a fortnight. This time last year, the chancellor was predicting growth of 2.6% in 2011, rising to 2.9% in 2012. His forecast for this year is already shredded. As for next year, the Bank of England has slashed its growth projection for 2012 to just 1%. Since Threadneedle Street tends to err on the side of optimism things may well turn out even worse. Mervyn King gave a recent interview in which he mused: “Who knows what’s going to happen tomorrow, let alone next month?” I suppose we might admire him for being candid enough to admit that he is as clueless as everyone else, but it doesn’t much help confidence when the governor admits they are all driving in the dark.
The great gamble that George Osborne took when he elevated deficit reduction above all other considerations was that he would set Britain on a benign path in which the expansion of the private sector compensated for the squeeze on the public sector and the resumption of vigorous growth helped bear down on debt. This virtuous circle has not materialised. The chancellor finds himself presiding over a negative feedback loop of feeble growth, weak tax receipts, higher unemployment and rising demands on welfare, making it daily less plausible that he will meet his deficit targets.
There has been one undoubted achievement of his chancellorship to date. That has been to secure market tolerance for the scale of Britain’s debts. The austerity programme which he announced at the beginning of the coalition’s life did win credibility with international lenders with the result that they have been prepared to allow Britain to borrow at interest rates not that much higher than those asked of Germany. Britain has thus far escaped the terrible convulsions that have seized Greece, now grip Italy and Spain, and menace France.
But even that success is now in peril because the chancellor is at risk of being caught in a credibility catch-22. If he concedes that it looks increasingly unlikely that he will meet his main deficit reduction target by the end of this parliament, the markets will threaten to turn on him, shoving up the cost of British debt and making it even more likely that we will slither back into another recession. If he attempts to maintain a pretence that his strategy is still intact, this is likely to sound so incredible to the markets that Britain will end up in the line of fire of bond traders that way too.
No wonder ministers are in such a sweat that they can no longer even co-ordinate their alibis. Responding to the grim jobless totals, the employment minister, Chris Grayling, blamed “what we’re seeing in the euro-zone”. Vince Cable flatly contradicted his Tory colleague. “I would certainly not blame the euro crisis,” said the business secretary, assigning fault to “the legacy we have to deal with”. In other words: blame Gordon Brown. The chancellor opted to try and make the guilty party the rest of the globe: “I accept it’s a very difficult time for the British economy and the world economy.”
Are any of them right? Labour did leave Britain with unsustainably high levels of public and private indebtedness and acknowledged that by committing itself to a deficit-reduction plan which would have been draconian, albeit not quite as severe as that implemented by the coalition. It is still the reflex action of some members of the government to try to blame it all on Gordon Brown, hoping to blacken Eds Balls and Miliband in the process. But this excuse – “It wasn’t me, guv, it was the other guy” – is bound to have diminishing political returns as time passes. Recent experience, from the travails of Barack Obama to those of the Greek government, suggests that modern rulers get a breathing space of about 18 months to two years when they can dump on their predecessors before the electorate starts to focus pitilessly and unforgivingly on the incumbent’s mistakes.
So ministers have increasingly shifted the emphasis on to Europe. For weeks now, the chancellor has been privately briefing and publicly implying that the single biggest obstacle to a British recovery is what he likes to call the “chilling effect” of the serial crises in the eurozone. He is correct to suggest that the nightmarish dramas in Britain’s largest export market have had a destabilising effect and a depressive impact on business confidence. But to attribute all of Britain’s problems to backwash from across the Channel is just not supported by the facts.
The weakening of our economy has been evident since January, when the chancellor’s preferred alibi was bad weather. The run on sovereign debt in the vulnerable eurozone countries did not become intense until the summer. The latest economic forecasts for all EU states place Britain 20th out of 27. The chancellor is on even weaker ground when he vaguely attributes Britain’s problems to the state of the world. Much of the globe is still growing quite vigorously. The Chinese are more worried about their economy running too hot rather than too cold.
So to the latest twist in the blame game, which is for members of the coalition to turn against each other, invariably an ominous sign for a government. Some of the Tories are trying to make anti-growth villains of civil servants and Lib Dem ministers. Recalcitrant officials and soft coalition partners – so goes the complaint of these Tories – are obstructing a “bonfire of red tape” that would allegedly promote growth by unleashing the animal spirits of enterprise. A fierce internal struggle has been waged over the recommendations of the Tory donor, Adrian Beechcroft, who has pressed ministers to strip away protections for employees, including the removal of the right to claim for unfair dismissal. I understand that this intense battle is due to be finally thrashed to a resolution when David Cameron, Nick Clegg, George Osborne and Danny Alexander have a “quad” meeting this week.
Yet it would be wrong to see it in terms of a crudely Tory versus Lib Dem struggle. The Beechcroft proposals have been regarded disdainfully by ministers of both parties. Officials at the Treasury, not a hotbed of workers’ rights activists, have been cool because they think fiddling about with employment protection is beside the point compared to the terrifying scale of what’s happening to the economy. They are right. Giving employers what would essentially amount to a right to fire at will doesn’t even stack up in terms of its purported economic benefits. If you suddenly make workers feel even less secure, they are most likely to react by saving more and spending less, which will have a directly counter-productive impact on growth. What is really hurting most British businesses is not restraints on how they treat their workers, but the lack of customers coming through the door.
The economy has barely grown over the past 12 months because demand is feeble and confidence is fragile. His opponents have been saying for some time that the problem with the chancellor is that he had a deficit strategy but not a growth strategy, and the absence of the latter would be the undoing of the former. He could shrug that off so long as it was only being said by Ed Balls and Ed Miliband. The most alarming sound for George Osborne in the past few days has been members of his own party starting to say the same thing. He must know that, when every other alibi fails, they will all blame him.