NIESR chief criticises Osborne’s austerity programme

Posted on February 3, 2012

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written for New Statesman by Robert Pollard

Chancellor’s obsession with spending cuts could cause ‘lasting damage’ to UK economy.

The fears of those who feel the government’s economic policy is flawed have been echoed by the director of the National Institute for Economic and Social Research (NIESR). Jonathan Portes, who served in the Cabinet Office under Gordon Brown, has claimed that George Osborne’s dogmatic insistence that austerity measures are the only way to improve the UK economy is causing ‘lasting damage’.

Portes has argued that the current high unemployment figures make the need for immediate stimulus increasingly urgent. Osborne’s refusal to ease austerity measures in the short-term are undermining the UK’s recovery in the long-term, something Portes believes could lead to entrenched economic adversity.

He said:

We are accepting a significant degree of long-term economic and social damage.

It’s not primarily about bigger growth next year. It’s about the long-run economic and social damage … that we are deliberately doing.

Portes was speaking at an NIESR event where their latest set of economic forecasts were announced. Their figures suggest that the UK is headed back into recession, with growth continuing to stall for the foreseeable future. They suggest a £15bn government investment in 2012 would add 0.7 per cent to the growth figures for the next 12 months, provided interest rates remained at their current level.

They also said that if the current fiscal squeeze is continued, the UK economy could contract by a further 0.1 per cent this year. This comes after news that the UK economy shrank in the final quarter of last year.

Furthermore, with unemployment standing at 8.4 per cent, its highest since 1995, the NIESR predicts it will reach 9.1 per cent towards the end of the year, which equates to 3 million people unemployed.

In his article for The Staggers here on the New Statesman, Portes claims that ‘deficient demand’ is the main problem facing the UK economy, and that the Chancellor’s current approach is exacerbating the situation.

Osborne’s refusal to negotiate the pace at which he implements his austerity measures has, so far, been undying, repeatedly insisting there is ‘no alternative’ to the government’s plans. However, with the intervention of a leading economic think tank like the NIESR, it raises further doubts over the credibility of his plan. As Alistair Darling noted in his New Statesman interview this week, Osborne has already revised down his own forecasts on four occasions since becoming Chancellor in May 2010.

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Posted in: Politics