How Osborne isn't facing economic reality

Jonathan Bartley
By Jonathan Bartley
29 Nov 2011

It’s staring George Osborne in the face. It’s written in the latest Autumn Statement. But he still doesn’t get it.

But sooner or later, Osborne, his Tory colleagues – and the Labour party too for that matter – will wake up to the fact that unless we make concerted moves to end our dependency on fossil fuels, we will continue in this economic malaise for many more years to come.

Right at the beginning of the Treasury’s Autumn statement are the words: “Higher than expected inflation, driven by a sharp increase in global commodity prices — the Office for Budget Responsibility (OBR) consider this to be the main reason the economy has grown more slowly than expected since the June Budget 2010.”

In other words, we are much deeper in trouble because the calculations failed to take into account what the Green Party (amongst others) warned about in their 2010 election manifesto: “High oil prices will wreck economies, leading to inflation and slump.”

Osborne acknowledged that it was rising commodity prices that had caused the rise in inflation in his speech in the House of Commons today, when he talked of:

“The ‘external inflation shock’, ‘the result of unexpected rises in energy prices and global agricultural commodity prices”. Their (the OBR) analysis is that this explains the slowdown in growth in Britain over the past 18 months.”

Except that it shouldn't have been a shock. It wasn’t unexpected at all. We should all now be realising that rising commodity prices - specifically rising oil prices - are here to stay. There may be some fluctuation up and down due to speculation and global events, but the overall trend is up and it will continue to be so. There are obvious reasons for it – supplies are finite, and the demand continues to grow globally. And unless Osborne now acknowledges this and acts upon it, he is storing up even more economic trouble for us all.

So what is Osborne doing? He is not just closing his eyes and hoping that it will go away, he is heading in the opposite direction. He certainly isn't learning from his latest mistake. Rather than investing in a Green New Deal that would create jobs whilst moving our economy away from its dependence on fossil fuels, he is reinforcing our reliance upon it.

Today he relented, and seemed to acknowledge that perhaps some investment was needed after all, in infrastructure - heeding at last warnings made, again by the Green party in their 2010 manifesto that: "Cutting investment now could lead to a double-dip recession".

But instead of taking the opportunity to head in the right direction, he announced instead more money to support the big energy companies and more spending on roads. This after having a couple of weeks ago potentially devastated the fledgling UK solar industry with cuts to the rates of Feed in Tariffs which will also cost huge numbers of jobs.

George Osborne’s suggestion that ‘Green’ measures are in some way a luxury, are both naïve and economically unrealistic. A Green approach is fundamental to tackling the underlying drivers of inflation, and so getting us out of the economic hole in which we find ourselves. And until he recognises that, we will find ourselves in an ongoing economic mess, fuelled by inflation which cannot be tamed by any amount of outdated 1980s monetarism (albeit now with a bit of Keynsianism to add to the Quantitative Easing).

We inhabit a new economic landscape. Whilst we remain hooked on fossil fuels, prices will continue to rise. The cost of living will continue to increase. Wages will stagnate by comparison, and high levels of unemployment will persist. Meanwhile Osborne will try to cut the deficit, which will be ever harder as tax revenues do not achieve projected levels, and the welfare bill which is also linked to inflation, increases.

Only when we begin to transition our economy – most importantly at the local level – away from dependence on fossil fuels, and onto a more sustainable footing, will there be a sustainable way forward and a sustainable strategy for cutting the deficit.

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© Jonathan Bartley is co-director of Ekklesia.

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