Chancellor Osborne is being urged to return to the stimulus policies which
failed under Gordon Brown
by Rosie Harrison
Alex Salmond’s call for the UK Chancellor George Osborne to shift policy and adopt a stimulus plan is being echoed by a growing number of politicians and organisations.
It seems increasingly clear Mr Osborne’s strategy of cuts to public spending and higher taxes has failed to fundamentally address the UK’s ballooning deficit. Forecasted to fall by £0.5bn this June, instead government borrowing has risen from £13.9bn this time last year to £14.4bn this year.
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Mr Osborne is expected to learn on Wednesday that Britain’s Gross Domestic Product (GDP) has seen little or no change. Combined these have led to the ratio of debt to GDP growing significantly - from 63.2 percent last year to 66.1 percent.
Forecasts for the future of Britain’s economy are dire as the financial crisis has become an economic crisis. Some economists to the left believe Britain’s GDP growth rate will reach 1.7 percent by 2015, its lowest level since the Second World War.
Last week the IMF followed Alex Salmond’s lead in calling for a stimulus strategy. The call has now been joined by the Institute for Public Policy Research (IPPR) which advocates Chancellor Osborne scrapping his austerity measures, increasing spending in infrastructure and temporarily cutting taxes to encourage much-needed private sector investment.
Alex Salmond’ call specifies that a £5bn UK-wide investment from the Treasury would be sufficient to create growth. Mr Salmond found an unlikely ally in the Mayor of London Boris Johnson who is siding with the First Minister against his fellow Tory. Mr Johnson said: “I would like to see a very aggressive campaign for more investment in infrastructure."
Such an accordance of opinions from opposite ends of the political spectrum could mean that stimulus carries a very broad consensus. However, Mr Johnson may harbor ulterior motives, as Mr Osborne could be considered his main competitor for the post-Cameron Tory leadership contest.
As austerity has demonstrably failed reverting to the stimulus policies of Gordon Brown does not constitute economic innovation.
A growing number of economists argue that the stimulus versus austerity debate is a false choice.
Professor Steve Keen, who was voted by fellow economists as the person who best forecasted the financial crisis in 2008, argues that as our economic malaise is caused by debt saturation further borrowing will not fix the crisis. Mr Keen believes only a debt cancellation process can now avert an economic meltdown.
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