Growth grinds to a sharp halt

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FIRST the austerity. Now the fallout, starting with today’s mass strike action.

For, regardless of the motives, this walkout by public workers, and the resulting inconvenience, is made even more futile by the bleakest of Autumn Statements.

Just where is the money going to be found to pay for the public sector’s largesse, and pensions, when George Osborne is promising financial pain today, hardship tomorrow and even more uncertainty for this Parliament’s lifetime and beyond?

Nearly 25 years after the death of Harold Macmillan, the Prime Minister who remarked that Britain had “never had it so good”, it could be construed that the reverse is now true – even the anticipated scrapping of January’s fuel duty increase did little to raise the spirits of bewildered MPs as growth forecasts were dramatically downgraded.

At least Mr Osborne cannot be excused of massaging these figures – though the Office of Budget Responsibility (OBR) did not quite forecast the recession predicted by others.

Yet, as borrowing rises to compensate the Treasury for flatlining growth and soaring unemployment, there was a chilling admission from the Chancellor that there will be even worse to come if the eurozone crisis is not averted. It is a grim prospect, as public sector pay is again capped and households face an unprecedented spending squeeze.

The only salvation, the Chancellor pointed out, is interest rates remaining at a sustained slow because of his cuts.

Predictably, Mr Osborne was quick to blame the eurozone and the sustained extravagance of the previous government for the gathering gloom, before promising to do “whatever it takes” to protect Britain from the “debt storm”. Yet, despite this, Britain’s indebtedness now eclipses levels built up in some of Europe’s more perilous economies.

In contrast, Ed Balls – the Shadow Chancellor – said the coalition’s flawed economic strategy was accelerating a slowdown and that Britons would pay a high price for this failure.

This combative exchange was indicative of Britain’s political divide and – further exacerbated by today’s industrial action – which can easily be summarised as coalition austerity versus Labour social conscience.

Yet, away from the House of Commons hubbub, the Chancellor’s challenge is to maximise those few policies that he was able to outline within spending constraints which are as limited as those that confronted Margaret Thatcher’s government 30 years ago.

To his credit, there is now a belated recognition that northern regions such as Yorkshire do matter. Further rail improvements have been announced as well as the electrification of the Trans-Pennine route, a lowering of Humber Bridge tolls and a new enterprise zone for the Humber.

These are three elements of this newspaper’s Fair Deal for Yorkshire agenda. Yet they must be viewed as just the beginning of a new era of infrastructure investment to help the region become less dependent on the public sector for jobs and innovation.

Despite this, the Chancellor did not convince his critics that his credit-easing plans for small businesses, or measures to limit youth unemployment, are deliverable.

He talked about a myriad of new funding streams as he pushed back his deficit reduction targets, but ultimately the changes are modest – despite the welcome cut in corporation tax.

And Mr Osborne largely failed to heed the warning of David Davis, the senior East Yorkshire MP, who asserted: “Even fewer small businesses are planning to expand than were 18 months ago. That in turn means there will be little or no extra employment tax revenue, but a continuing drain on the state from welfare payments.”

The Chancellor needs to take this frank assessment to heart as crucial talks continue in Brussels about Europe’s future, and the OBR warns that the outlook is now weaker than after the banking crisis.

The fate of the euro, rather than yesterday’s speech, will inevitably be the real economic game-changer, but blaming others – however culpable – will not create the growth that is even more elusive now than before the election.

As such, the only strategy that matters is one where George Osborne looks to maximise any opportunities, and limit the fallout, of a slump that was, arguably, a decade in the making – and one that could take even longer to put right.