Yes, the UK economy has recovered. But the evidence of high fiscal multipliers when interest rates are low and trading partners are also retrenching suggests it would have done better since 2010 without the Chancellor’s front-loaded tax hikes and capital spending cuts.
If you object to more cuts “after the books are balanced” why did you not refuse to sign up for budget surpluses in 2018-19 and 2019-20?
What if the surplus was only 0.7% of GDP, rather than 1%, as the Tories’ rhetoric now seems to suggest? A simple extrapolation, using the Treasury’s calculations, suggests public debt would be £63bn higher in 2035-36.
Here’s why, despite the fact that the economy is growing relatively strongly and the cost of living is falling, many people still feel worse off than they did six years ago.
Disregard the conventional wisdom. The Coalition’s penciled-in plans entail considerably more austerity than Labour’s do.
None of this proves that the UK recovery is unsustainable. But there is nonetheless enough in these latest statistical breakdowns for policymakers to remain cautious.
Which is the appropriate baseline for evaluating the distributional impact of the Coalition’s fiscal policies? The answer to that question would seem to be obvious.
If interest rates were to rise to around 2.5 per cent few savers would spend more. But, by contrast, many borrowers would spend less according to Bank of England research.
A counterfactual economy without either monetary or fiscal loosening would probably have involved spiralling deflation and financial implosion, ending in total economic and social collapse.
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