In his Autumn Statement today, the Chancellor is claiming vindication for his economic strategy, saying that it has put Britain back on the road to economic recovery. However, while it does appear to be the case that the economy is recovering again, this is in spite of his economic policies, not because of them.
The good news is that the economy is growing again. Real GDP - the total output of the economy - increased by 1.8% in the first three quarters of the year, according to the latest figures from the Office for National Statistics. But this is actually less than the growth rate of 2.0% recorded in the three quarters up to the second quarter of 2010, when the Coalition took office. The growth rate of the economy is not yet back to where it was when George Osborne became Chancellor. In the interim, there has been a two and a half year period when the economy grew by just 1.1%, an annual rate of 0.4%.
This period of weak growth was not wholly attributable to the Chancellor's policies; large increases in global commodity prices were a big factor, as was weak economic activity in the Euro-zone, still our most important trade partner. But the Euro-zone performed so poorly in no small part because it implemented fiscal policies similar to those adopted here. And there is no doubt that the Chancellor's policies - by taking more demand out of the economy when confidence in the private sector was weak and interest rates were already at rock-bottom levels - exacerbated the problem.
At the time of the June 2010 Budget, the Office for Budget Responsibility (OBR) forecast that the economy would grow by 8.2% between 2010 and 2013; the likely outturn, based on the forecasts it published today, is just 2.7% - one-third the expected rate.
The OBR's forecasts tell a similar story. It has today upgraded its forecast for real GDP growth next year from 1.8% to 2.4%, bringing it into line with other forecasters. If the OBR is right, this will be very welcome. But in June 2010 it was expecting growth in 2014 to be 2.7%. For all the recent increased optimism on the economy, the Chancellor is still not back to where he started on the outlook for growth.
And, the same is true for unemployment. The Government have, quite reasonably, drawn attention to strong employment growth and falls in unemployment over the last two years. This is reflected in the OBR's cut in its unemployment forecast for 2014 from 8.0% to 7.1%. But, again, the comparison with the OBR's June 2010 forecast that unemployment would have fallen to 6.5% by 2014, is a reminder of how the economy has been blown off the course in the last three years.
Finally, there are the public finances. The Chancellor is making much of the OBR's prediction that the government could be back in the black by 2018/19, when public sector net borrowing is forecast to be -£2billion. But this is much later than expected. He originally planned for his target measure (the cyclically-adjusted balance on the current budget) to be in surplus in 2014/15; in today's forecast, that is still delayed until 2017/18. Because borrowing has been much higher than envisaged over the last three years, and will continue to be higher for the next two, public sector net debt at the end of 2015/16 is now expected to be £1,451,000,000 - some 10% higher than forecast in June 2010.
So, while it is good news that the economy appears to be back on the road to recovery, we should not forget that it was already growing at a reasonably healthy pace in 2010. Any government would have had problems balancing the need to demonstrate it had a medium-term plan to reduce its deficit with offering support to the economic recovery. But the fact that Britain has been diverted onto a different path for the last three years is, at least in part, the result of the Chancellor's policies. And a comparison of the OBR's latest forecasts with those it made in June 2010 show just what the cost to the economy has been in terms of lost output, higher unemployment and, ironically, higher public debt.
Tony Dolphin is Chief Economist at IPPR