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Now for the numbers bit ... The simple case for investment not cuts

5 September 2012

The Government’s austerity plans need to be opposed not just due to their human costs, but because of their total failure to achieve what they set out to do. Not only are they failing to return the country to prosperity, they are the prime cause of the ‘double dip’ recession, triggering the economy to shrink again. Like some medieval doctor, the more ‘treatment’ that George Osborne administers, the bigger the problem gets.

GDP

Put simply, the deficit is the gap between money the government gets from tax and the money it spends in any year. The national debt is the combined balance of historic borrowing.

As large numbers of people are out of work, billions in tax payments are lost by the Government, which also has to pay out more in benefits. Companies that are shrinking or going bust reduce tax payments further. The key to turning all of this around is growth.

The Tories argued that the volume of public spending was ‘crowding out’ the private sector, which would automatically grow as public-sector cuts were made. On the contrary, companies with healthy balances are on an ‘investment strike’, preferring to keep hold of their money because they see great risks and few opportunities at present.

Osborne and Cameron pledged to remove the structural deficit during this Parliament. The further recession they have caused means they now admit it will last at least two years beyond this.

The initial crisis was global, but as the graph shows the outcomes have been very different for different countries. Cameron and Osborne have blamed the Eurozone for sending Britain back into recession – but the average position across the Eurozone economies is one of growth, with those economies most similar economies to Britain growing the fastest. Britain is near the bottom of the league, not due to cold weather, wet weather, royal celebrations or watching too much TV during the Olympics, but, in greatest part, because of the wrongheaded policies being pursued by the Tory-led Government.

Debt in itself is no major problem, but expensive or unaffordable debt is. At the moment the cost of servicing the national debt is lower than almost the whole post- war period. The cost of new borrowing for the Government (the bond yields talked about on the news) is now so low that this is the cheapest time in years for the Government to be borrowing to finance infrastructure and growth-generating schemes.

Debt

The interest rates being offered to government are now so low that almost any sensible project will cover the cost of the increased borrowing through growing tax revenues. Housing, rail and other transport infrastructure, de-carbonising our energy supply – there is no shortage of large-scale projects which are massively needed and produce near certain returns.

The Government should be making the most of this opportunity to rebuild core components of our economy, whilst providing jobs for millions both directly and through the knock on effects of this spending.

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