Hugo Radice: Osborne sticks to Plan A as he sets sights on road to recovery

Taken together, the new measures helping motorists, businesses, first-time housebuyers and jobseekers were fully funded by new revenues from North Sea oil, tax avoiders and the banks. But those measures were in themselves so modest that they are unlikely to lift the encircling economic gloom.

George Osborne knows very well, however, that even if the coalition succeeds in its efforts to ensure the present parliament lasts five years, there is little chance of re-election if the recovery is not in full swing well before 2015.

For this reason, the main emphasis of his speech was on reform and rebalancing, painting a picture of an entrepreneurial economy in which manufacturing, supported by a slimmed-down and efficient public sector, becomes the new engine of growth. For this purpose, he has put together a menu of measures that are mostly all too familiar from the history of economic policy over the last half century. But will the general public see any reason why these measures will work this time around?

Part of the problem is undoubtedly that most of the proposals will take a good while to implement, and even longer for their effects to feed through to jobs and incomes. The creation of new enterprise zones, and extra money for apprenticeships, are both certainly welcome, especially in regions like ours which will be hit hard by the decline in public sector employment. But they will have to be delivered precisely by that public sector, within which the main reservoirs of expertise on training and redevelopment, the regional development agencies, are even now being dismantled and their staff dispersed.

This is not a task that can be left to the Big Society. Proposals for expanding apprenticeships and technical colleges, and to extend tax reliefs for innovation and business start-ups, have likewise been a staple of many past attempts to revive British industry, but will take time to have any effect.

Another key theme for the Chancellor was cutting the cost and complexity of taxation and regulation. While no-one in their right mind would oppose such a worthy aim, history suggests that this will prove extremely difficult. The complexity of public policy reflects the complexity of modern society; the red tape that supposedly strangles local development proposals has evolved in response to the greater importance that citizens have come to place on their environment and amenities. The furore over the proposed high-speed railway through the Tory-voting Chilterns provides a case in point. Overall, the success of the Chancellor’s 2011 budget depends in any case on matters outside his control, matters about which he remained very largely silent. The economic forecasts published yesterday by the Office for Budget Responsibility reflect the widespread view that economic prospects for the UK look weaker than they did last summer: growth in 2011 is now expected to be 1.7 per cent rather than 2.1 per cent, while the forecast for 2012 is marginally reduced from 2.6 per cent to 2.5 per cent.

This revision is based largely on concerns that higher-than-expected inflation will cut into household spending, and therefore a slower growth of output. In turn, that will also make for a worse fiscal position, due to lower tax revenues and higher welfare spending.

But the OBR also points to an improving outlook for the world economy as a whole in the next two years, which raises the questions of whether this optimism is justified, and whether the UK can participate fully in the global recovery.

On the world economic context, the concerns widely expressed earlier in the year over tensions between the US and China seem to have abated. Instead, turmoil in the Middle East has dramatically affected the price of oil, and thereby the short-term prospects for global economic growth.

In the longer term, the emergence of stable democracies may mean that at last, economic progress will be commensurate with their wealth of natural resources, but the picture will remain unclear for many months, if not years. While the tragic disasters in Japan have disrupted supplies in some sectors and countries, they are unlikely to have a serious economic impact overall.

But the management of the sovereign debt of weaker eurozone economies continue to be a source of uncertainty, together with the global problem of rising food prices.

With regard to the UK’s relative performance, there must be concern about the forecasts for both exports and investment. In 2010, the economies which import from the UK increased their total imports by 10.7 per cent, but UK exports only grew by 5.8 per cent, so our share of those markets declined. The OBR nevertheless forecasts that for the next three years, we will increase our share of those markets. Likewise, business investment is expected to grow by an average of nearly 9 per cent per year from 2011 to 2015, more than offsetting a steady decline in government investment.

If UK exports and business investment both meet these targets, which are very ambitious by historical standards, then George Osborne’s Plan A will certainly be judged a success. Otherwise, he will be hard put to restore the coalition’s popularity in time for the next election.

Hugo Radice is a Life Fellow in the school of Politics and international studies, University of Leeds.