Lord John Eatwell is Labour's Shadow Treasury and Economic Affairs Minister in the House of Lords
The OBR's forecast for growth of business investment this year is down from 7.7% in November to near 0.7% now. The forecast for growth of exports is down and the forecast for house building is down. And unemployment? Another 150,000 on the dole in 2012.
No wonder the OBR states that the impact of the Budget on the prospects for growth and jobs will be "nil".
Why is the Government's growth strategy such a spectacular failure? Why does the plethora of encouraging sounding micro-measures on energy, on exports, on science, not make a scintilla of difference to the OBR's growth forecast? The answer is provided by the Institute of Directors in their response to the budget: "The key factor blocking implementation of [investment] plans is not cash, but confidence" argues the IoD. What's the point of investing if you have no confidence in the prospect of sales; you're simply going to lose money.
The source of the Government's central policy failure is that they chose to treat a unique post-war event (the 2008 global downturn) as if it were due to policy excess.
Budget figures show that from 2005 to early 2008 the deficit was falling, from £40bn a year to around £32bn. Then, following the failure of Lehman Brothers in September 2008 the financial crisis devastated the public finances: a veritable financial tsunami cut revenues and increased spending, driving net borrowing to a peak of £157bn in May 2010.
So what the Government inherited was in fact a composite position: a perfectly sound financial stance, overlain by the financial consequences of the crisis. But instead of tackling the unique problem they threw the economy into reverse, devastating business confidence, cutting the growth rate they inherited from over 2% to near zero.
As an illustration of the Government's folly, suppose that instead of a financial tsunami, Britain had been hit by a real tsunami that destroyed 6% of productive capacity, resulting in a sharp fall in tax revenues and an equally sharp rise in Government expenditure.
Would the Government have then chosen a path of austerity to restore the public finances? Of course not. It would have set about funding reconstruction. A sinking fund would have been established to spread the cost of restoring the economy, and in consequence restoring the public finances, over a lengthy period of time. No-one would have recommended bearing all the cost in just a few years. And no-one would have imagined that reconstruction could be guided by market forces alone.
What then is the difference between this hypothetical tsunami and the all too real financial tsunami? Nothing, other than the Government’s failure to distinguish between a unique shock and normal policy stance. As of today 90% of the Chancellor’s planned benefit cuts are still to come, resulting in a cumulative 6% taken out of aggregate demand over the next 4 years. That’s the Government’s headwind the economy is battling against.
So what are the overall effects of the Government's economic policies - that total output, still 4% below the peak achieved in 2008 will not return to that level for another three years. They have transformed a shock as large as that experienced in 1930, into a depression that will last at least 2 years longer than the 1930s depression.
And it's no excuse to argue that everyone else is adopting the same policy. There's only one prize for being the quickest lemming.
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