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Tuesday, November 29, 2011 

The metamorphosis.

Slowly but ever so surely George Osborne is morphing into Gordon Brown. The man who wanted to turn the autumn statement into just that, a statement to the Commons on the public finances rather than use it as an effective second budget as Brown did was today reduced to following the man whose mess he professes to be clearing up. Just as it required supreme chutzpah to claim there would be no return to boom and bust, as though Brown could personally abolish the economic cycle, so today Osborne approached a statement that was so grim in content it could rival the average Mike Leigh film with the kind of cheerful arrogance that ought to so damage the coalition's credibility.

After all, for all the endless blaming of the crisis in the Eurozone, this is a problem of Osborne's own making. Regardless of how often Labour trumpet it, the facts were that the coalition inherited an economy which, if not healthy, was getting back on its feet. Within months of taking office confidence had plummeted so far that even adjusting for the "one-off" events over-egged by the Office for National Statistics, growth was flat. The OECD now predicts that the almost negligible growth of the past year will turn into a shallow recession in the next two quarters. Even the slightly more optimistic Office for Budget Responsibility suggests growth next year will be a shockingly low 0.7%, and that's in something approaching the best case scenario. The cuts may have only begun in earnest this year, but the message was that things would start to get better almost immediately. Instead they're getting worse. This ought to be the sort of news that makes a chancellor a liability.

Osborne by contrast showed all the signs of enjoying himself. Some politicians adore winding the other side with their deliberate enraging choice of phrases; Osborne's mere appearance is enough to make certain Labour MPs howl. When he then urged the unions to call off tomorrow's strikes, only to then later announce that public sector pay would be frozen at 1% for an additional two years you had to wonder if he was deliberately inciting them. Indeed, it's difficult to believe that the coalition isn't deliberately playing different sectors of society off against each other: while he announced that benefits would rise at the inflation level of 5.2%, as it was in September, despite rumours suggesting they might be pegged at 4.5%, he confirmed that the higher rate of tax credits would be frozen. Not only then are public sector workers being goaded into looking at the deal being given to those out of work and sick with envy, so are those in the unimpeachable "squeezed middle". Additionally, as in the past, the government is describing the overall effect of the changes as progressive as it hits the most well off the hardest, ignoring completely how the next most affected group are, naturally, the poorest. This is the same sleight of hand that so characterised Gordon Brown's budgets, and which the OBR was meant to counteract.

The additional sacrifice being asked for will be further resented should the new growth strategy, such as it is, fail. Almost all of it had been pre-announced, such was the feeling that the terrible growth figures and higher than expected borrowing would crowd out the "good" news. I suspect instead that it might have helped to mask how awful they are, although the news will quickly turn back to tomorrow's strike. Even this though was in effect an admission of how previous schemes had miserably achieved next to nothing: the government backing of lending to small businesses, named credit easing, only highlights how the much heralded "Project Merlin" has been a complete disaster, perhaps even a PR exercise from the start. The infrastructure programme, of which only £5bn is being provided from government coffers, the rest to be made up by pension funds, was described by Margaret Hodge "as PFI by another name", with all the horrors and waste of the off-balance sheet system returning to potentially haunt us.

One can only assume that Osborne and the Conservatives, and it seems the Lib Dems along with them, have decided they can do without the votes of the vast majority of public sector workers altogether. Or as it's increasingly going to be, former public sector workers: having first assumed there would be 400,000 job losses in total, the small print now admits it's more likely to be an eye watering 710,000. Another nasty surprise was that the public sector pay review bodies would be asked to look at making pay more "responsive to local labour markets". In practice this will almost certainly mean further pay cuts. While it can be argued this will be fairer overall and make private companies more competitive in certain areas, it could also have the opposite effect: reducing the amount of disposal income public sector workers have affects businesses and in turn tax revenues. We already have complaints about postcode lotteries in health and education; do we really want another one? The TUC may be exaggerating slightly in suggesting that, including the pension reforms, public sector workers will by 2015 have had a real terms pay cut of 16% but it is nonetheless an indication of just how brutal Osborne is being.

The whole point of all this pain was meant to be the elimination of the structural deficit by the end of parliament, something which now looks close to being unachievable without further cuts. Already Osborne admits he can't get rid of by 2015 as originally promised, but will still achieve the "fiscal mandate" target of doing so in 5 years. Labour's plan, or Alistair Darling's original one was to do the same but over a longer time scale, with slightly shallower cuts. The lesson it seems is clear: talk of austerity and the cuts to come is enough to strangle confidence and damp down demand. The measures announced today are nowhere near enough to put this right, and all of us are going to pay the price for much longer than Osborne said we would.

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