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It is now a mantra in the Labour Party, trade union and wider anti-cuts movement that Osborne's policies have created, or at least made a major contribution to, the current economic problems in the UK.

There are good reasons to be sceptical of the claim.  While the OBR's analysis does indeed show that cuts will weaken growth, their work does not suggest the negative impact is as significant as one might expect listening to the left. But more importantly, the ONS data shows that public spending has actually been a contributor to growth for the first half of this year. (Q3 data is out soon.)

Now the admirable Chris Giles of the FT has written one of his excellent myth-busting articles explaining that the real driver of the slowdown is not cuts but is, rather, the current high levels of inflation.  Importantly, these were not forecast by the OBR and explains why growth has underperformed the expectations.  As Giles says:

Since the fiscal tightening was fully known a year ago, the only way deficit reduction can explain the difference is if the OBR was grotesquely optimistic about the effects of tax rises and spending cuts on the economy. If so, you would expect to see private sector savings rising rapidly in response to fiscal tightening, multiplying the initial effect through the economy. It has not happened.

Instead, Giles points out that the £30 billion hit to household incomes created by high prices is easily enough to explain the current slowdown.

Which raises worrying questions for Labour and others.  Firstly, there is the moral question of whether it is right to so consistently perpetuate a claim that has limited evidence to back it up.  But this is politics and morals have a limited role, I guess. 

So from a more hard-headed perspective there is the question of credibility.  If inflation really is the significant cause of economic woe, then that must mean that once prices settle, the prospects for the economy to bounce-back should be quite great even with the austerity programme.  The worst one might be able to say is that austerity has not allowed things to bounce back quite as enthusiastically as might otherwise have been the case.  But that line will hardly be enough to save the credibility of Labour and others which could be looking pretty ragged in a year or so if Giles is right. 

I wonder if we may be saying by then that for the short-term benefit of having a stick to beat up Osborne, Labour and the anticuts campaign played fast and loose with the evidence but then came a cropper when their flawed analysis inevitably came undone.

Two things, of course, might prevent such a scenario.  Either prices remain suprisingly high and/or the Eurozone goes into meltdown.  On such horrors, the credibility of HM Opposition might hang!


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