Wednesday, 29 May 2013

Austerity: IMF 1, Osborne 0

 Source:  The Guardian

The IMF on Wednesday told George Osborne that the UK remains a "long way from … recovery"; that "persistent slow growth could permanently damage medium-term growth prospects"; that, six years on from the collapse of Northern Rock, British banks are still not back to "healthy functionality"; and that the centrepiece of the chancellor's last budget – the help-to-buy scheme aimed at boosting property sales – would inflate house prices and lock would-be first-time buyers out of the market.

The great surprise was that the IMF went as far as it did last month, openly criticising the austerity that it is enforcing across southern Europe.

Given that the chancellor has made clear that he will not repudiate his signature policy, it was to be expected that the intervention this time would be easier on Treasury ears. Even so, this was a difference largely of tone, not of substance.

As the deputy managing director David Lipton made clear when fielding questions from journalists, the IMF still believes that the government is following the wrong fiscal policy.

It still thinks the coalition ought to be spending more now to support the economy during the almighty bust; and cutting more later, when the economy has recovered somewhat. In particular, Fund economists believe the UK ought to borrow up to £10bn more this year, and plough that money into public works.

Observers can argue the toss about whether such a policy is Ed Balls's plan B, but one thing is clear: it certainly isn't the Osborne strategy. The chancellor could have "back-loaded" the cuts, as the IMF now suggests, but refused – largely to fit a political timetable, with a general election due in 2015.

He was backed at the outset by the Fund. Back in September 2010, it chorused supportively: "The UK economy is on the mend. The [emergency budget] plan is essential to ensure debt sustainability. The plan … supports a balanced recovery."

One of those two bodies has since awoken to harsh reality: sadly, it isn't the Treasury. 

David Cameron was the first major leader to volunteer for austerity, even while Barack Obama was still gunning for fiscal stimulus in America. The comparison between the UK and the US performance is not flattering to the prime minister: our economy has yet to make up the ground lost after the banking crisis; the US has more than made up the lost ground and enjoys a tepid recovery


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