Eaton-Why the economy could now cost the Tories their majority

Over at the New Statesman's Staggers blog George Eaton believes that the current economic turmoil could cost the Tories their majority.

Osborne's pledge to eliminate the structural deficit in one parliament was based on a political timetable, not an economic one. By 2015, Osborne envisaged that the Tories would be able to boast that they had claned up "the mess" left by Labour - a powerful political narrative - and offer cuts in personal taxation. But anaemic growth, higher unemployment and, consequently, higher borrowing mean that this is an increasingly distant dream. Osborne's ultimate goal - a Tory majority - is slipping out of reach.

George-Please can we have Plan B

The 80's are returning in more ways that one and in a move similar to that under Margaret Thatcher,100 economists have written to the Observer this morning telling George Osborne to move to plan B.

They call for an immediate halt to cuts, to protect jobs in the public sector, a new round of quantitative easing to finance a "Green New Deal" to create thousands of new jobs,benefit increases to put money into the pockets of those on lower and middle incomes and give a boost to spending and a financial transaction tax to raise funds from the City to pay for investment in transport, energy and house building.

The letter headed by former European Investment Bank consultant Dr Ha-Joon Chang urges the government to engage with new ideas on stimulating growth, and warns the chancellor that his policies may push the country into further deficit rather than erase the national debt.

The paper's editorial backs up the call.

Whilst it saysvoices are not all in accord on what Plan B might constitute.

How to diversify and rebalance the economy; how to promote growth and how to restore ethics, mutualism and a sense of fair play to an economy and society does not easily command a consensus. However, we are witnessing an important shift. There is an awareness that a "business as usual" approach is no longer acceptable. The Observer welcomes this change of direction and the initiation of a debate that could prove historic in the salvaging and reshaping of our economy and the resetting of our national priorities for years to come.

Cabinet splits over growth and red tape

This morning's FT contains an interesting report revealing that there are increasing divisions amongst the cabinet over the lack of economic growth and the slow progress being made in coming up with plans to lift burdens on business.

The report says that Vince Cable believes that some other ministers have failed to grasp the gravity of the situation facing British companies and that they have not prioritised the need to cut red tape across the board.

His frustration is also shared by Downing St and by George Osborne in particular and a lot of their frustration appears directed at Work and Pensions Secretary Iain Duncan Smith who department has been slow inimplementing reforms to health and safety laws.

Maybe one to watch?

Growing clamour for Osborne to change direction

With the overnight news that America has begun the latest attempts to address the growing crisis in the world economy with the central bank unleashing $400bn to prevent the world's largest economy sliding back into recession,there is much speculation amongst commentators that a U turn in the UK is the right way to move.

Not more so than the Telegraph's Jeremy Warner who writes that the euro crisis gives the Chancellor an opportunity to recast his deficit reduction strategy.

Jeremy writes that

The mistake the government made when selling the austerity programme to voters was to claim that the mere act of reducing the deficit would unleash a private sector revival that would counter the jobs and growth being lost to fiscal consolidation. That was never likely to be the case in circumstances where the private sector is even more indebted than the Government, and therefore vigorously engaged in exactly the same process of paying off debt. If everyone is trying to cut back all at the same time, it is a matter of simple arithmetic that overall demand will suffer.

Meanwhile at the Guardian Seumas Milne writes that only radical action will drag the economy from the brink

The breakdown of the model of capitalism that began in 2007-8 is now entering a new and potentially even more destructive phase, with the threat of another Lehmans-style spasm as European banks loaded with unrepayable sovereign debts fuel a new credit squeeze.

Concluding that

The economy is in flames and the neoliberal model that has brought it to this pass is bust – even as the political class clings stubbornly to the orthodoxies of the boom years. But those who grasp that the crisis is transforming politics will shape its future.

Even the FT believes that it is time to change tact,

If weak demand was the only problem, throwing money at it would be the simple solution. But the UK economy also appears structurally weaker than anyone had hoped.

But it adds that Private sector productivity is lower now than before the financial crisis started and coupled with that the chances of rapid growth are further diminished by rapidly declining output in the banking sector, and in oil and gas extraction.

Yesterday's Public borrowing figures were another kick in the teeth for the government's strategy with borrowing higher than it was a year ago,it rose to £15.9bn last month, compared with £14bn.

That coupled with two separate warnings from the IMF surely now increase the pressure on the government to change tact.