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IFS pours cold water on Osborne’s plan for growth

The Institute for Fiscal Studies says plans to boost the economy announced in this week’s autumn statement are unlikely to have any impact on growth, according to reports.

Setting out its assessment of the statement yesterday, the IFS also said the scale of cuts to public spending over the next seven years is “unprecedented” since the end of World War Two.

In Tuesday’s statement, Chancellor George Osborne announced a small firms investment scheme, £5bn on new spending on infrastructure and an agreement with pension funds to leverage £20bn of investment into public infrastructure projects as well as a £20bn credit easing programme for businesses.

According to the Telegraph, IFS senior research economist Helen Miller says: “I do not think any of this looks set to be the key to unlocking our long-run growth potential. All these plans are quite small.”

The extra spending on infrastructure must be seen in the context in the context of more than £20bn worth of cuts to infrastructure spending between 2010 and 2015, she said. She added that there is a lack on necessary detail on the credit easing and pension fund infrastructure investment programmes.

Alongside Osborne’s statement, the Office for Budget Responsibility released new figures downgrading growth forecasts. It now expects 0.9 per cent growth for this year and 0.7 per cent next year. In March, it put those figures and 1.7 per cent and 2.5 per cent respectively. The Bank of England has said it does not expect growth of more than 1 per cent in 2011 or 2012.

Over the next seven years, public spending will be cut back by 16.2 per cent. A 9.3 per cent reduction in the 1970s is the closest reduction in spending since the 1940s. IFS director Paul Johnson says: “One begins to run out of superlatives for describing quite how unprecedented this is. Certainly there has been nothing like it in the last 60 years.”

He says the Chancellor must be “keeping his fingers crossed that something turns up” which enables him to deliver a further £23bn of “entirely unspecified” cuts announced in the statement. After the last round of spending reductions, Johnson said, it will be much harder to find savings because there should not be “any waste left.”

Responding to the Chancellor’s statement, Shadow Chancellor Ed Balls attacked the Government’s approach to the economy saying it was undermining growth and forcing the Government to borrow more.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Clearly Paul Johnson hasn’t grasped that the global financial markets are in total chaos & bits of it may go up just as fast as they came down.

  2. Brown raided the private sector pension funds and now the government wants the private sector to put our pension money into infrastructure – ie “The Public Sector” The private sector is getting sick of it. Revolution is impossible until it becomes inevitable – there must come a time when the private sector will no longer tolerate a system where a common labourer who empties rubbish bins has a pension that a skilled motor mechanic can only dream of.

  3. seems like another case of needing controversy to gain publicity. Is it not well documented that much of the UK economy depends on exports? If most of the workd ecomomy is in recession shouldn’t the experts help explain that dependency rather than adding to the confusion. All Osborne can do here is dampen the short term impact – not singlehandedly start world economic growth. Let’s get real!

  4. The current Conservative/Lib Democrat coalition have little economic intelligence.

    Debt is a number, compared to the likes of the United States our debt is substantially lower per head. With almost 3 million unemployed there is substantial slack in our economy.

    You can only ever be bankrupt when working at full steam you can’t pay your way.

    Savage cuts will continue to open the roads for us to enter a depression. Let’s get people back in to work, let’s grow the economy faster than the interest rates on our debt, and let’s stop causing unnecessary misery for the next decade.

    With our own central bank there is no reason the markets need to be appeased at the cost of people’s happiness and prosperity.

  5. £37bn tax relief for private pensions. Maybe this should be reduced to help the national debt.

  6. “£37bn tax relief for private pensions.” Don’t forget that public sector workers also get tax relief on their personal contributions. Remove that and public and private sector workers can join forces on the barricades.

  7. The public sector cannot grow when the private sector is shrinking, as it’s the private sector which funds the public sector.

    Too many people in the public sector have what I call “non-jobs,” i.e. they don’t bring anything to the table. Contrast them with teachers and nurses who do bring something to the table.

    Don’t get me wrong, there are some very good people in the public sector: the trouble is that there are not enough of them and those that aren’t should be gone.

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