As Britain returns to a technical recession, what course should George Osborne take?
PLAN A+
Mark Littlewood
George Osborne must not change course. On the contrary, he needs to redouble his efforts and rediscover the steely determination that the coalition has recently lacked. The government’s apparent bravery in tackling public expenditure looks set to result in spending flat-lining, not markedly falling, between now and 2015. The budget deficit will not be eliminated until a couple of years into the next parliament, at the very earliest. Osborne must re-open the spending review and be bold on the numbers, not just the rhetoric. This could create space for much needed tax cuts. Similarly, the government needs to stop talking about a growth strategy and instead actually deliver one. At times, it seems almost allergic to any meaningful supply-side reform, like freeing up of the labour market or radical liberalisation of our antiquated planning laws. As Ronald Reagan said, there are no easy solutions, but there are simple solutions.
Mark Littlewood is director general of the Institute of Economic Affairs.
PLAN B
Will Straw
Not only is Britain back in recession but the economy is smaller now than when George Osborne delivered his spending review eighteen months ago. The government’s economic strategy has failed and the key to getting growth going is domestic demand. Businesses are hoarding cash and failing to invest because consumers don’t have the disposable income. Three priorities stand out: putting cash back in people’s pockets through a targeted, temporary national insurance cut, new infrastructure spending to boost construction, and job guarantees for the long-term unemployed. The IMF says Britain has room for manoeuvre, but Plan B will never happen under Osborne. Instead, he could pay for this growth package by targeting those with the lowest propensity to consume. An end to tax-free top rate pension contributions, cutting winter fuel payments for wealthy pensioners, and a mansion tax should top the list.
Will Straw is associate director at the Institute for Public Policy Research.