The economy is shrinking, so George Osborne's economic policy is a failure, right?
Depends how you look at it. Yes, the best the UK is flatlining, but growth isn't the only consideration. If you look around Europe you'll see everywhere economies in trouble. Ireland and Greece have needed bail-outs. Spain and Italy's borrowing costs are pushing the 7% barrier thought to be the point of no return. How's Britain doing? Well the cost of borrowing depends how long you want the money for, but while not as low as Germany, our borrowing costs are at historically low levels. This morning the UK sold some index-linked 17 year bonds at a negative rate - that's to say borrowers actually paid the UK to look after their money. The massive deficit Osborne inherited from Labour is falling, both in nominal and real terms and as a percentage of GDP.
Someone said recently that our borrowing costs were low because we were one of the best looking horses in the glue factory. It's certainly true that markets, terrified of the state of the southern European economies, are desperate for somewhere safer to put their money. No matter how unpromisingly things are going here, we still look a bit better than some of our neighbours across the Channel.
Put it like that, and Osborne's policy is working rather well. Certainly the markets think he'll pull it off. If they didn't, we wouldn't be borrowing at under 2%. Anyone who thinks, as the two Eds apparently do, that just borrowing a bit more money will set our economy going again at trend rate or something like it (2.5%), when all around us European governments are tumbling, China faltering and even the US set for a dose of fiscal rectitude after Obama's re-election in November, is living in cloud-cuckoo land. In these circumstances the best we can hope for is to stay afloat.
Its failure to recognise this that makes Labour's economic policy, sadly, a joke. Labour tells the Tories they must spend more to reflate the economy. The Tories borrow (and thus spend) more, but the economy doesn't grow. So Labour says Osborne's policy isn't working, overlooking the reality that he is doing pretty much what they wanted.
Of course it's also arguable that this paradox makes Osborne look foolish too: he says that extra borrowing will push up bond rates. It hasn't happened; or at least not so as you'd notice.
In this mutual game of it-was-him-no-it-was-him, my sympathies lie slightly with Osborne, because undoubtedly every extra billion we borrow pushes us slightly closer to the point where the UK slips beyond the financial event horizon and down into the vortex of death. Which is why this morning's borrowing figures this morning were bad for the Chancellor. It's early in the year, and borrowing fluctuates from month to month, but May borrowing was up to nearly £18bn from £15bn last year. And this is the danger for Osborne. Economies weaken across Europe. UK tax revenues shrink and benefits payments rise. Borrowing rises to pay for it. The deficit goes up instead of down. Our interest costs rise accordingly. We are sucked into the same whirlpool that did for Greece and is now doing for Spain and Italy. We are not there yet, but you can see how it might happen.
If it does, you can forget not just Plan A, but all the rest of the alphabet as well.
