I do seriously wonder what, if anything, George Osborne understands about economics and the real world. As the FT reports this morning:
Britain’s hard-pressed construction industry has poured cold water on the government’s plans to stimulate the economy with a £5bn boost to infrastructure spending and a £20bn investment from pension funds, warning it will make “no discernible difference” in the short term.
Why? Because as the article also notes:
An extra £5bn of capital investment, funded by spending cuts elsewhere, formed the centrepiece of the national infrastructure plan announced by George Osborne, the chancellor, last month as part of an attempt to prevent the country sliding back into recession. [But d]espite the chancellor’s announcement actual capital investment by the government is set to fall by £14bn over the next three years, given the much bigger cuts announced in the Comprehensive Spending review of 2010. Spending on infrastructure is expected to drop 30 per cent from £59bn in 2010-11 to £45.4bn in 2013-14.
So, as the FT notes:
“The £5bn merely lessens the fall,” said Noble Francis, economics director at the Construction Products Association, the trade body for the building industry. “Worse still, most of the effects of this ‘boost’ won’t been felt for at least 12-18 months so it certainly won’t be helping construction, or the economy, anytime soon. It will make no discernible difference in the short term.”
This is entirely predictable. First, this was announcing that other people would spend money without getting their prior consent.
Second, as is rightly pointed out by the industry, this only partially corrects previously announced cuts by Osborne: there is no new money in this.
Third, by cutting benefits which are spent with immediate impact this capital spending does in net turn increase the downturn in demand, fuelling the risk of recession.
Fourth, as argued in The Green new Deal, the need is for small projects that can have immediate impact like insulation, solar energy installation and repairs which all have a high local labour content too and not major works right now.
These are viable plans. Why isn't Labour shouting about them?