FactCheck: Miliband cutting economic corners?
“He is going too far and too fast with deficit reduction and that is what is inhibiting growth in this country”
Ed Miliband, Labour leader, Prime Minister’s Questions, 26 January 2011
Cathy Newman checks it out
After growth figures described by some economists as “an absolute disaster” and a dire warning on living standards from the governor of the Bank of England, Ed Miliband had no shortage of ammunition to lob at David Cameron during Prime Minister’s Questions yesterday.
And, with his new shadow chancellor sitting beside him trying not to look too happy about the economic doom and gloom, the Labour leader wasted no time in going over the top – in more ways than one. Mr Miliband claimed public spending cuts were shrinking the economy. But does he need the economics primer the last shadow chancellor left behind?
George Osborne played right into Ed Miliband’s hands on Tuesday, by saying the weather was to blame for the shock drop in the economy.
But as FactCheck found out, the economy was in trouble well before the bad weather struck.
So it was no surprise when Mr Milliband kicked off Prime Minister’s Questions by blaming the coalition’s austerity measures for stifling Britain’s economic recovery.
But the problem with that claim, is that Mr Osborne’s axe has barely begun to swing.
He has four years to deliver £81bn of public spending cuts and so far the only cuts underway are the £6.2bn of Whitehall efficiency savings – to be delivered by the end of March.
Most of the Chancellor’s cuts won’t come in until the 2011-12 financial year, which starts on April 1st.
And even then the effects will take time to show up in economic data.
So Mr Miliband seems to have got this one wrong - it wasn’t less public money, or mass public sector redundancies, that caused the economy to slow in the last three months of 2010.
But then what is slowing down the economy?
Jonathan Loynes from Capital Economics reeled off a number of possible factors to FactCheck.
First up, the effects of the last government’s stimulus policies in 2008 have probably worn off by now.
Then there was last year’s downturn in the housing market. And consumers have been hit hard by rising inflation and wages that haven’t kept up.
Plus there’s been some weakness in key export markets; the US and the Eurozone for example.
But really there is so little data available to check at this stage – the Office for National Statistics has only gathered 40 per cent of its information for the last quarter, the rest is just an estimate.
All this means that the only thing you could really blame the miserly GDP figures on, is consumer confidence, Andrew Goodwin from Ernst & Young ITEM Club told FactCheck.
Consumer confidence is very fragile, but nowhere near as bad as it was during the recession.
And actually, history tells us that retailers should get a bit of a bounce from the incoming VAT rise in January.
Ed Miliband made a schoolboy error in stating that the cuts had choked off growth when they haven’t even started in earnest yet.
In fact, it’s difficult to pin it on the current administration because the shrinking economy may well be a hangover from the previous government’s stimulus package.
Mr Miliband would have been on firmer ground if he’d argued that the GDP figures show the economy may be too weak to withstand the impending cuts. We’ll know if the cuts are too much, too fast in a few months’ time.