Dan Lewis: Too much stick and not enough carrot as Osborne's major test still lies ahead

WHEN George Osborne stood up in the House of Commons yesterday, it was a critical moment for the future of this country. Designed to support the Government's three objectives of growth (essential), fairness (vague) and reform (much-needed), the Comprehensive Spending Review will be remembered in the UK's economic history for a long time.

For be in no doubt, the CSR has set the terms of debate on the size of government way beyond this Parliament's lifetime, far into the 2020s. But apart from holding the coalition together, what will it really do for the economy, what is beyond the Chancellor's control and where might he have done more?

All of this, of course, might not be of immediate concern to the 490,000 public sector workers who may lose their jobs if they don't leave or retire first, those slated to pay higher rents for social housing, or to the recipients of hitherto long-term Employment Support Allowance.

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I doubt they shall see the upside to these cuts any time soon, less

still be impressed by arguments about lowering the cost of Government debt interest payments. Generally though, the public's mood has been tempered thus far by the realisation that no-one in Britain, especially in the private sector, has had a good recession. But can we now have a good recovery?

The omens are far from encouraging. Typically, post-recession, the speed of growth, the rate of job creation and the hoped-for tax revenues that these will bring are vital to the economy's fortunes.

However, compared to previous recessions, recovery growth has been poor, not least because the UK is still very much reliant on the slowest-growing parts of the global economy; Europe and the US. And then let's not forget the banks which are still not lending, they're actually borrowing even more from us. The Bank of England's June financial stability report revealed the extraordinary statistic that the private sector is repaying more to the banks than the banks are lending to them.

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But all growth is relative. And compared to euroland, the UK starts from a relatively benign position, thanks to a devaluation, a 0.5 per cent interest rate and substantial amounts of quantitative easing. So if growth here chugs along at just more than two per cent a year, we should not overlook the fact that in vast swathes of Europe, including France, Spain, Greece and Ireland, it may well be worse. Meanwhile, we will of course be comfortably outstripped by four per cent or more and our economic decline will continue.

At the local level, though, Yorkshire and the Humber can look forward to some useful capital spending on infrastructure like a superfast broadband project in North Yorkshire and upgrades to the M62 motorway and the Sheffield to St Pancras railway line. It will be the relatively small things like these that people notice.

For all that, on the overall level of taxation, there is not much to cheer about. The basic problem is that tax revenues collapsed to 548bn this year and total government expenditure will be some 11 per cent higher at 697bn.

The aim is to get those figures to be roughly the same by 2015. So until then there will be no new tax cuts and probably a few more green taxes to help fund the Green Investment Bank at the price of a new nuclear power station.

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The only slightly good news is what we already knew about from the June Budget; corporation tax being lowered from 28 to 24 per cent over the next four years. At least no one has cancelled this yet.

The last thing any economy does, though, is run according to plan.

There are actually a few scenarios that are far beyond Osborne's

control, starting with a Greek default in euroland that then engulfs some of the other weaker euro-members such as Spain, Portugal or Ireland. The financial instability that arises from that will be far worse than what we've just been through. And then don't rule out some

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sort of tit-for-tat trade war between the US and China getting out of hand.

Overall, I just wish the Chancellor had been more daring. Sir Philip Green's report showed some promise of what might be in Government property management. There's so much that could be done in the fields of outsourcing public services to the Big Society, extending the privatisation programme and embracing technology to drive down the cost of Government. That being said, the world is moving ever faster and all this may yet come to pass.

If Osborne was nervous yesterday, he certainly didn't show it. And don't believe the hype, Britain was actually quite a long way from bankruptcy. But it would be mistaken to believe that just because voters haven't yet taken to the streets, they won't do so in the course of the next five years.

Overall, the CSR has too much stick and not enough carrot. The real test will be at the ballot box in 2015 and there will have to be some sweeteners in tax cuts and tangible Government efficiency gains before then.

Dan Lewis is chief executive of the Economic Policy Centre