Friday, 27 April 2012

Time for Plan B?

George Osborne has been urged again by the Labour Party to change course, most lately at the announcement of a double dip recession by the ONS.

I absolutely disagree with Labour's prescription for our economic difficulties, but increasingly feel that a change in policy is needed. Towards the middle of 2011 I felt the same discomfort, but was persuaded by George Osborne's speech at conference. The economic situation has worsened since then.

I very strongly feel that the UK economy requires rebalancing. A decade of Labour led to an overinflated public sector, fed by debt and allowing the distortion of indicators like unemployment.

The measure of a strong economy should always be the strength of its private sector. The UK was done an injustice when it became overreliant on the state for employment and growth, and it is now upto this government to take the action necessary for rebalancing.

It is a credit to the Chancellor that the UK has retained its credit rating on the back of a commitment to deficit reduction. This, in the face of European sovereign debt crises, is an achievement which is extremely beneficial to us all. However, whilst enough action may be being taken to (only just) satisfy the ratings agencies, it is not enough to turn around our economy.

Rebalancing is entirely necessary. It is inevitable that it will happen at some point in the future, and it is much less painful to do it now than to wait. My argument is that small steps towards change over a long period of time is just prolonging the pain and damaging public confidence. I would prefer a shorter, sharper course of action.

It has taken some time for me to come to this conclusion, but I very much feel that this should be a turning point in policy. We are simply not doing enough. Deeper, faster cuts in the public sector are necessary. A truly pro-business tax-regime, along with a truly pro-business Secretary of State for Business, Innovation and Skills is needed. There is no doubt that this will be painful, but if this action is taken at a faster rate the recovery can begin sooner and be more entrenched.

It should be made clear to opponents of George Osborne that cuts are not a choice: they are an economic necessity. It was striking that when the GDP data was released every economist the news channels broadcast were arguing for either a maintenance of course or for deeper cuts. All stated that this must happen for the economy to recover: within the experts, there is no debate.

Our only choice is whether we want the pain to be long and drawn out, or short and sharp. Do not be fooled by the promises of the Labour Party. Their plans may provide some comfort in the short term, but result only in ruin in the long term.

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