deficit reduction plan

theguardian.com
Far from ‘strong and stable’, May’s economic plan is weak and unstable
Labour has won the battle of the manifestos with policies that can deliver better growth whereas the PM’s offering more of the same: cuts
By Larry Elliott

Confronted with the strong evidence that economic policy since 2010 has been a failure, May’s response has been to offer more of the same. Deep welfare spending cuts are designed to balance the books, and would help do so if the Bank of England was in a position to respond with cheaper borrowing.

But that can’t happen because interest rates are at 0.25% and can’t go lower. As a result, welfare cuts suck spending power out of the economy. That leads to slower growth, which explains why it will now take until the middle of the next decade under Conservative plans to run a budget surplus.

Presumably, sticking to a deficit-reduction plan that isn’t working fits with May’s “strong and stable” mantra. But, in truth, the wrong mix of monetary and fiscal policy has left the economy weak and unstable. Weak because investment and productivity have been so poor. Unstable because growth has been so heavily reliant on debt-driven consumer spending.

Higher growth under Labour would be the result of abolishing the 1% cap on public sector pay, an increase in public sector employment and plans to boost spending on public infrastructure by 50%. The claim by the Conservatives that higher borrowing would lead to much higher deficits and an explosion in the national debt is dismissed by Oxford Economics as the pre-Keynesian nonsense it is.

To sum up, May called an election when there was no need for one, when the public didn’t want one, when living standards were falling, when the economy is dysfunctional, when the strategy of the past seven years has demonstrably failed, and when there is a viable alternative.