You could forgive George Osborne and his Treasury team for breathing a collective sigh of relief this morning. The economy grew by 0.3% in the first quarter of 2013, avoiding a triple-dip recession. But on closer inspection there is still cause for concern. Whilst this growth may be welcome, it is insignificant and merely avoiding a triple-dip is not good enough.
The Chancellor cannot endlessly postpone his plan to get the deficit under control. In the name of so-called austerity, George Osborne is actually going to add £600 billion more to the national debt by the end of this parliament. That is equivalent to £4,000 a year for each and every household in the country. This is far from a programme of austerity. We are, in fact, still living well beyond our means.
With a budget deficit larger than that of Greece, a reduction in public spending is essential if the government wants to achieve sustainable and continuing economic growth. But the ring-fencing of areas of very high government spending has made it much harder for the Chancellor to come remotely close to balancing the books.
Even the government's more modest plan outlined in last month's Budget to eventually stop over-spending is reliant on growth forecasts which, to date, have been hugely over-optimistic. So the government needs to face up to the facts: spending must be brought under control.
There are many ways in which the government can promote growth whilst cutting spending. Restoring confidence in the private sector is paramount and we can do that by freeing up the economy and making the room for major tax cuts.
Deregulatory measures to the labour market would make easier for small businesses to expand and create new jobs. Planning liberalisation would not only ease the crisis of housing affordability but would be a massive boost for troubled industries such as construction. Output fell by 2.5% in this sector in the last quarter, creating uncertainty and detering investment.
Boosting productivity is also crucial. We can do that by improving labour market flexibility and reducing marginal tax rates to unleash the potential of businesses and entrepreneurs.
Today's poor GDP figures indicate that the UK is in the midst of a long-term growth problem. But it's not down to "savage cuts". What we have experienced is profligacy, not austerity. Furthermore, regulation is strangling the economy and high marginal tax rates are disincentivising people from working, saving and investing.
If we want a growth revolution, we need a policy revolution. To get real, sustainable growth back in the economy the government must reduce spending, cut taxes and enact key supply-side reforms to encourage enterprise. We may have avoided recession, but without action there is a real danger of meagre growth becoming the new normal.