'Pro-growth economist' takes up ConservativeHome's campaign for George Osborne to adopt slower growth in public spending.
When Shadow Chancellor George Osborne MP set out his party’s pledges on public spending in The Times last September, his promise to match Labour’s fiscal plans for three years caught the most attention. The budget was set to rise from £615 billion in 2008 to £674 billion in 2010 – a two per cent annual increase in real terms.
Torn between the party’s economic liberals – who were demanding tax cuts – and an alleged general desire to spend more on public services, the Conservative leadership described their budget as a plan for “sharing the proceeds of growth” – a phrase aimed at pleasing everyone. It meant more money for schools, hospitals and the police for those who prefer higher spending. To people who want a smaller state instead, it was a synonym for less government. After all, if the proceeds of growth were shared between higher absolute spending and lower taxes, the state’s relative share of GDP would fall.
But above that, by committing to Labour’s spending plans the Conservatives wanted to reassure the general public that no “Tory cuts” would happen if elected. No hospital would close, no policeman laid off, no school would suffer. In this sense, it was good politics as it closed a complete angle for political attacks.
Since George Osborne wrote his article, the outlook for the UK economy has darkened, however. The true scale of the Northern Rock disaster is gradually emerging, consumer spending has slowed, and house prices have gone into reverse – and that is without mentioning the big international question marks like the US economy and energy prices. Amid such clouds on the economic horizon, it is unsurprising that many economists have revised downwards their forecasts for this year. Most analysts now believe that we can only expect growth of just below two per cent in 2008. But even this may turn out to be too optimistic if the housing market correction turns out to be more severe than estimated. How growth will look in the years after 2008 is only intelligent guessing.
So where does this leave the Conservatives’ plans to “share the proceeds of growth” and increase public spending by two per cent annually for the next three years?
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