Pushing on a piece of string

George Osborne is a mountaineer, scaling Mount General Election 2015. It was all going broadly to plan until budget 2012. Today he sought to recover the ground lost through the missteps, especially the cut to the top rate of income tax, of a year ago.

There was no contrition, however. There was little that was even new and not just because the whole budget was leaked to the Evening Standard. We may be in the slowest recovery for a century, as Ed Miliband reminded us during his response, but Osborne was unrelenting and unrepentant in offering more of the same.

The claimed mix is of active monetary policy, fiscal responsibility and supply-side reform. All of which seems misconceived. Keynes compared loose monetary policy in a depressed economy to pushing on a piece of string. Recent experience seems to prove him right.

Rock bottom interest rates and unprecedented QE – the stuff of active monetary policy – have done little to stimulate the economy, which is suffering a dearth of demand. In this context, no matter what the merits of individual policies, a supply side-driven approach grasps for the wrong end of the telescope. True fiscal responsibility would tackle this shortage of demand, as public debt will only further rise bereft of this vital ingredient.

Osborne may be attempting to rescale the political heights but the persistence of his failed economic approaches dig the British economy into an ever deeper hole. The deficit won’t be closed without a growth recovery, which depends upon a resumption of demand that shows no signs of materialising and was brought no closer today.

While his partial embrace of Michael Heseltine’s proposals for growth is a tacit acknowledgement of failure, it is inadequate to recover animal spirits that have now been dormant for half a decade. Zombie firms linger in this dismal environment propped up by our dysfunctional financial sector. This roadblock to a reinvigorated British capitalism went unaddressed.

It is not clear what Osborne’s childcare announcement will do to help families using informal – eg grandparents – rather than formal childcare. These grandparents are also being asked to work longer and retire later. At least their social care costs will now be capped a year earlier than planned. But the cap of £72,000 remains much higher than Andrew Dilnot recommended to government.

Mark Carney might reflect upon Osborne’s unwillingness to fully accept the advice of Heseltine and Dilnot and wonder what he is letting himself in for at the Bank of England. Certainly what Osborne had to say about the monetary policy committee’s remit amounted to tinkering when what is required is a fundamental rethink.

The duty of the committee to recover growth and jobs should be made explicit. Osborne’s half-baked helping hands on childcare and social care will be cold comfort unless this recovery comes. The penny that he has taken off a pint of beer may do a little to help us drown our sorrows but diminution of these sorrows would have been preferable.

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Jonathan Todd is an economic consultant. He tweets @jonathan_todd

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