Britain in crisis. Q&A on the country's failing economy... by the expert who predicted the recession

1. Is Britain heading back into recession?

1. Is Britain heading back into recession?

TECHNICALLY, a recession is two ­consecutive quarters of negative growth. We had one at the end of 2010 and in all likelihood the first quarter of 2011 will follow suit as the VAT increase hits. That means a double-dip recession.

Output grew 1.1 per cent in the second quarter of last year and unemployment, especially among youngsters, was falling – proof that Labour’s economic policy was working.

Now, output is falling, inflation and unemployment are rising and jobless levels among young people will soon hit one million. The Coalition’s misguided policies caused this collapse.

2. Is the weather to blame for Britain’s economy shrinking?

THE weather is only partly to blame. Even without the cold snap, economic growth was exactly nil. But evidence suggested the economy was slowing even before the bad weather.

I was in Southampton over Christmas and a taxi driver told me it was the ­slowest holiday period he had known and I was his first fare after a massive six-hour wait. He didn’t think he could carry on once the price of petrol ­increased in the New Year.

Nobody believes Chancellor George Osborne’s claims it was just the weather. Other countries had bad snow and they did OK.

3. What is the Tory-led ­Government’s strategy to get us out of this mess?

THE Coalition’s strategy is to cut public spending, raise taxes and fire lots of public sector workers. They are crossing their fingers, hoping lots of private ­sector jobs will be created in their place.

Their tactic, which is called “fiscal austerity”, has been used overseas and has usually stalled economic growth, just like it has in the UK.

The only examples of it working were when interest rates were cut at the same time, but that is not possible now.

Osborne is hoping the Bank of England will print more money, but it is resisting the route of quantitative easing because it can fuel an increase in inflation.

Crossing your fingers isn’t an ­economic policy.

4. Is it time to change tack?

Yes! Osborne needs to create jobs rather than to destroy them. The first step is to cancel the January rise in VAT to 20 per cent and hold off April’s ­National Insurance increase.

He should restore the Future Jobs Fund and the educational ­maintenance ­allowance, both of which helped youngsters into jobs and helped keep ­unemployment down.

Otherwise, there is a disaster looming.

5. Which should be the priority – cutting the deficit or ­encouraging growth?

The Tory-led Government needs a ­strategy to deal with the deficit because it reassures financial markets it has its house in order. This government is ­fixated on the deficit and it does not have a strategy for growth.

It was accused of neglect by Sir ­Richard Lambert, the outgoing ­director-general of business lobby group CBI in his ­farewell speech last week.

There is simply no necessity to pay off the deficit as quickly as Osborne wants. It is his choice to inflict the most pain on the weakest in our society.

And it is his choice to impose ­draconian measures so soon in 2011 and 2012, so that by the time the next election comes round in 2015, he can make tax cuts, hoping people will have forgotten.

His priority should be to get the economy moving now.

6. How bad was the economy when the Tory-led Government inherited it in May 2010?

The economy faced a once-in-a-century financial crisis. Countries with large financial sectors and rapid increases in house prices such as the UK and the US were hit particularly hard.

The Labour government prevented recession turning to depression by ­pumping money into the banks, saving them from collapse.

Unemployment was falling and public finances were ­improving. And the economy was ­growing – GDP growth in the second quarter was 1.1 per cent.

7. Was it fair of the Tories to compare Britain to a bankrupt country like Greece?

This is complete codswallop. Contrary to what Osborne and his cronies claimed, the UK was never close to bankruptcy and had not run out of money.

If you were CEO of a big company who was asked if it was bankrupt, you would deny it. Tory false claims drove business and consumer confidence down and it was the fear of austerity – what economist John Maynard Keynes called “animal spirits” – that drove us into recession.

And we are nothing like Greece, which has spent half the time since its ­independence in 1829 in default of debt obligations.

Britain has not defaulted once. We have our own central bank and floatingexchange rate so we can devalue the pound, while Greece is stuck in the European Monetary Union and cannot devalue the Euro.

8. What do you think of the Chancellor’s economic skills?

“Slasher” Osborne is a smart political operator but has no background or training in ­economics and it shows.

We know from WikiLeaks that Bank of England governor Mervyn King told US ambassador Louis Susman both David ­Cameron and Osborne lacked experience, dealt in broad generalities, tended to think about issues in political rather than ­economic terms and ­surrounded themselves with a weak team of young advisers.

And this week Sir Lambert ­accused Slasher of taking “a series of policy ­initiatives for political reasons, apparently careless of the damage they might do to business and to job creation”. It seems Osborne has failed economics and must go to the back of the class.

9. Why has inflation gone up?

Inflation this month was 3.7 per cent. In a speech last week Mervyn King explained there were several reasons why.

The Government’s increase in indirect taxes, including VAT, is partly to blame – if you strip that away then inflation is 2 per cent and back on target. Secondly, import prices have gone up by more than a fifth mainly because of the fall in the value of Sterling. And thirdly, there has been an increase in world energy prices, particularly oil and gas.

Taken together, these factors account for a remarkable increase in the ­inflation of 3 per cent a year.

10. How high could unemployment go?

The Government is proposing to cut public sector spending and jobs. The impact on firms supplying the public sector will reduce the number of private sector jobs.

Unemployment may well pass three million if the government fails to come up with a plan for growth. Sadly, youth unemployment is going to pass a million in the next few months. Osborne has no plans to reduce ­unemployment – it looks like his only plan is to increase it.


Personal Injury  

Injured in an accident at work?

Find out if you can claim in 30 seconds



Compare the latest poker bonuses

Get top poker tips and sign up online