04/12/2013 07:16 GMT | Updated 23/01/2014 18:58 GMT

Autumn Statement 2013: Is The UK Recovery Really A Triumph For Austerity, Chancellor?

Dominic Lipinski/PA Archive
Chancellor George Osborne during a visit to the offices of HM Revenue & Customs (HMRC), in Westminster, central London, ahead of his mini-budget on Wednesday, where the Chancellor will unveil a 154 million blitz on big-name global companies and wealthy individuals who dodge tax bills to claw back billions of pounds for the Treasury.

George Osborne is set to pounce on the improving GDP figures to argue in Thursday's Autumn Statement that his strategy of fiscal austerity has been vindicated.

But has it been? His critics say he is being "misleading" and exaggerating the impact and extent of austerity measures.

For a start, the Chancellor who began his period in office constantly stressing the importance of "tough choices" about "fiscal consolidation", hasn't been as rigid as he might like us to believe.

For example, in 2012, Osborne not only let his target of having national debt falling as a share of national income by 2015 slip a little, but also announced government interventions to stimulate demand, such as the Help to Buy and Funding for Lending (FLS) schemes which were targeted at the UK's mortgage market.

Martin Beck, UK economist at Capital Economics, told the Huffington Post UK: "There has been some austerity and the economy is smaller than it would have been without it. But to say that austerity worked to guarantee the recovery would be misleading."

"The taxpayer has done a lot of off-balance sheet stuff for this recovery that don't appear in the borrowing figures like FLS and Help to Buy."


James Meadway, senior economist at the left-wing New Economics Foundation, goes further, saying: "To compensate for years of failure, Osborne has started fostering another consumer debt bubble – a reckless gamble."

The fact that austerity has delayed economic growth is generally agreed by most economists, and even Robert Chote, chair of the government's Office for Budget Responsibility, confirmed in June that "tax increases and spending cuts reduce economic growth in the short term".

Despite Osborne's political talk about "tough choices", some experts on the right point out the Chancellor has brought in "mild cuts". City broker Tullet Prebon said claims of economic austerity were a "bare-faced deception", pointing out that official Treasury numbers showed real public spending was just £8 billion (1.1%) lower in 2011-2012 than in 2009-2010.

The cuts in full: total spending over 2010-2015

Cass Business School Professor Philip Booth, from the right-wing Institute of Economic Affairs, says: "They are mild cuts in the sense that they are partly cuts in projected increases in spending and they only really take spending back in real terms to roughly 2008 levels."

"Growth is a relief but not a success story. It is the normal state of affairs so the growth has come about as a result of the recovery from recession, which was inevitable if half-sensible policies were followed."

However, the inconvenient truth that Osborne won't be rushing to admit in his Autumn Statement is that the economic growth coming through has been fostered with traditional Keynesian means, as the chancellor took his foot off the austerity pedal and quietly brought in stimulus measures.

Osborne's 'austerity' still sees debt (PSND) soaring, as the OBR sketched out

Jonathan Portes, head of the National Institute of Social and Economic Research, and a long-standing critic of austerity and supporter of Keynesian economics and 'borrowing to invest', explains: "When deficit reduction stalled, the government had a choice: when in a hole, should it, as its original plan suggested, keep digging? To its credit, the chancellor's answer was no; the fiscal framework was abandoned, and the timetable for debt and deficit reduction allowed to stretch."

Now, Treasury ministers boast about how much investment they're making, with Danny Alexander promising in June to guarantee £300 billion of capital spending in infrastructure projects by 2020. As the chief secretary to Treasury boasted on Wednesday: "You name it, we're building it right now."

You could say: they're all Keynesians now.

For political reasons, of course, Osborne can't say anything other than 'austerity worked', that the recent positive growth figures are a direct consequence of his cuts to public spending. On Thursday, as he stands at the Despatch Box, the chancellor will hail a "responsible recovery" and lavish praise on his "Plan A" for austerity.

It is far from the whole story, however. As Credit Suisse economist Neville Hill told the Financial Times, "Plan A has ceased to be, it is an ex-plan,”.