The realisation that the economy is not recovering as hoped – and may even be on the brink of tipping back into recession – has revived the debate about how to encourage GDP growth.
The government is right to stick to its deficit reduction strategy. But it is worth noting that, for all the sound and fury, government spending is being reduced by only about 1% per annum in real terms. Furthermore, George Osborne actually intends to add several hundred billions to the national debt between now and the next general election. If you hear anyone talking about “paying down the debt”, they have a wholly inaccurate view of the public finances. The limit of the government’s ambition is simply to stop adding to the national debt over the next four years.
The general perception is that the coalition has little room for manoeuvre in terms of fiscal policy. The last government’s outgoing Chief Secretary to the Treasury, Liam Byrne, famously conceded this in his memo for David Laws, which baldly stated, “There’s no money left.”