Like an exhausted runner at the very back of a marathon race, Britain tomorrow should finally stagger across the line that marks the end of the “Great Recession”. Although the news will be welcome, it is hardly unexpected. After all, every other major economy started recovering months ago.
The Prime Minister’s promise that Britain “would lead the world out of recession” turned out to be a cruel deceit — we were one of the first into recession, and the last out. The Governor of the Bank of England last week estimated that the British economy was now a full 10 per cent smaller. That puts the annual bill in lost earnings for this recession at around £140 billion — and makes every British family on average £6,000 a year poorer.
It should be a cause for sober reflection. Why was the model of growth pursued in Britain over the past decade so vulnerable to bust? Answer: because it rested on such unstable foundations — a boom in public spending that could not be paid for; a boom in household debt that could not last; and a boom in financial services that went completely unregulated.
As Joe Stiglitz, the Nobel Prize-winning economist, observed at the weekend, “the UK financial system was even more overblown than that of the United States”.
That raises an urgent question. Where is the growth going to come from? At the moment, recovery is being driven by near-zero interest rates, printing money and a dramatic depreciation in the exchange rate. None of those things can be counted on to support growth in the medium term. Nor must we return to the failed model of debt-fuelled growth that led us into this mess.
We need a new British economic model that learns from the mistakes of the past. First, that new economic model requires government to live within its means. We entered the recession, after years of growth, with one of the highest deficits in the developed world and we leave the recession with our credit rating under threat. That will have potentially disastrous consequences for international confidence. If Britain starts to pay the sort of risk premiums that Greece is paying, the interest bill on a £150,000 mortgage would go up by more than £200 a month.
The overriding objective of fiscal policy must be to provide the credible deficit reduction plan that allows the Bank of England to keep mortgage rates as low as possible for as long as possible. That will do more to sustain a recovery than anything else. That credible plan must eliminate a large part of the structural deficit over the next Parliament, starting in the coming financial year. The end of the recession removes the last excuse Gordon Brown has for sticking with next year’s reckless spending plans. The only reason now why the difficult decisions are being delayed until 2011 is that there is a general election in 2010.
Second, Britain’s new economic model must be built on saving and private sector investment, not the unsustainable public spending and consumer debt of the past ten years. Exports and business investment provide the key to a sustainable recovery. Yet every tax decision and new piece of regulation from this Government sends the message that Britain is closed to business. We need to become competitive again. Simpler taxes with lower tax rates, removing employment taxes on new businesses employing new staff, stopping the remorseless rise of red tape on small businesses: all these can help.
And instead of the Government’s gloomy warnings about the rise of China and other economies, we should see it as an incredible opportunity. The Chinese are likely to develop from a nation of manufacturers to a nation of consumers, just as we did in our Industrial Revolution. We can sell them our branded goods, our aircraft engines, our films and television, our pharmaceuticals, our financial and legal services, our higher education, and we can even attract their tourism.
The private sector must take the lead, but government must help with a modern planning system, encouraging green investment, and providing modern transport infrastructure. Above all, with a record one in five young people out of work, government must provide the education, training and welfare reform we need to get Britain working.
Finally, the new economic model means a new banking system. Britain should aim to be the undisputed centre for global finance. That means a regulatory system that commands confidence, with the Bank of England in charge instead of the old failed tripartite regime. It means Britain becoming a champion of internationally agreed structural reforms of the kind President Obama proposed last week, rather than remaining wedded to the old unstable structures that the current Government has encouraged.
It means exploring ideas of a banking levy of the kind Sweden has introduced, and America has in part adopted, instead of pursuing plans for a Tobin tax on transactions that are failing to command international support. These reforms should all be on the table at the G20 in South Korea later this year. While at home, the next government should be developing new sources of finance for the small and medium businesses for whom the credit crunch remains a reality.
Britain was ill-prepared for the Great Recession and has suffered more than most. Now, as the last major economy to leave recession, we are equally ill-prepared for recovery. We need new, lasting sources of growth. That requires a new economic model and a new government that understands it.
George Osborne is Shadow Chancellor
Print Email var addthis_pub="articletol"; var displayBehaviouralNav = true; Your Comments
Order By:
Newest first Oldest first Most recommended gSiteLife.CommentsOutput("ExternalResource", "7000847",false, 10,"TimeStampDescending"); have your say
Would you like to post a comment? Please register or log in
Login var strBeforeLogin='',strAfterLogin='',strAtParticipate=''; var pluckCookie = 'at'; var cookieDomain = '.timesonline.co.uk'; var pubUrl = '/tol/'; /*params for Login flow*/ var atCookieValidity = '30'; var erightsCookieValidity = '0'; var apacheCookieValidity = '1'; var erightsCookie = 'ERIGHTS'; var cookiePath = '/'; var articleId = '7000847'; var userIdCookie = 'punter'; var articleUrl = 'http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article7000847.ece'; var signinText = 'Hello'; var myProfileUrl = 'http://www.timesonline.co.uk/genreg/showUserDetails.do'; var myProfileText = 'My profile'; var logoutText = 'Log out'; var commentsUrlPrefix = 'http://www.timesonline.co.uk'; strAtParticipate+=' '; strAtParticipate+='
We have introduced a new, improved comments system. Please sign in to leave a comment'; strAtParticipate+=' '; strAtParticipate+=' '; strAtParticipate+=' '; strBeforeLogin+=' '; strBeforeLogin+='
Would you like to post a comment? Please register or log in'; strBeforeLogin+=' '; strBeforeLogin+=' Login'; strBeforeLogin+=' '; strBeforeLogin+=' '; strBeforeLogin+=' '; fGetLoginStatus(); gSiteLife.AddEventHandler('widget:comments', fAutoResizeCommentIframe); gSiteLife.AddEventHandler('widget:comments', function() { function $(id) { return document.getElementById(id); } var elem = $('Paginator') // find the page number if it exists. That's the page we're on OR default to page 1 fDisplayCommentPageNum((elem && (elem = elem.getElementsByTagName('b')[0]) && (elem = elem.firstChild) && elem.data || 1),10); }); gSiteLife.CommentsInput("ExternalResource", "7000847","http://www.timesonline.co.uk/tol/comment/columnists/guest_contributors/article7000847.ece"); Terms and conditions Also in Guest contributors How to stop Britain going bust again Mothers lost on the margins Also in Columnists Reapply for our own jobs? We can take a hint, thanks Allan Brown: What a flap – Holyrood’s guardians have flown the nest Gillian Bowditch: Why should we all pay for this tired old drivel? Times Recommends Don’t write Japan off. The giant is stirring The moral is: question your motives, parents Why do we put up with this plastic plague?
function colURL(aUrls) { window.location=aUrls; } function blogURL(bUrls) { window.location=bUrls; } fieldset { float:left; width:165px; border:0px; margin:0px; padding:0px; } OUR COLUMNISTS
Columnists
Select David Aaronovitch Simon Barnes Camilla Cavendish Jeremy Clarkson Giles Coren Robert Crampton Daniel Finkelstein Michael Gove Anatole Kaletsky India Knight Dominic Lawson Leo Lewis Rod Liddle Magnus Linklater Ben MacIntyre Bronwen Maddox Minette Marrin Carol Midgley Caitlin Moran Richard Morrison Matthew Parris Michael Portillo Libby Purves William Rees-Mogg Melanie Reid Peter Riddell Hugo Rifkind Sathnam Sanghera Frank Skinner Graham Stewart Andrew Sullivan Rachel Sylvester Janice Turner Guest contributors
Blogs
Select Alpha Mummy Archive Blog David Aaronovitch Asia Exile Baby Barista Blockbuster Buzz Charles Bremner Big Brother Mary Beard Comment Central Cricket Blog Faith Central Formula One Ruth Gledhill Inside Iraq Ariel Leve India Knight Money Rafael Nadal News Blog William Rees-Mogg Rugby Sinofile Mick Smith Sports Commentary Irwin Stelzer Peter Stothard Technology Travel Urban dirt Wimbledon
Cartoon More cartoons Peter Stothard
The Editor of the TLS writes on books, people and politics
A Don's Life
Mary Beard of Cambridge and the TLS on culture ancient and modern
American politician: don't feed the poor, they'll only reproduce Comment Central MOST READ MOST COMMENTED MOST CURIOUS Most Read Skip Most Read Today The secret lives of married men Brad Pitt and Angelina Jolie no more as... The worst thing about the smoking ban Two Britons among 90 feared dead in... MOST COMMENTED Skip Editor's Pick Today if(isArticle == "true" && articleHeadlines.length!=0){ for(var j=0; j=45){ headline = articleHeadlines[j].substring(0,44)+"..."; } document.write(""+headline +""); } }else{ fSubmitMostCommented('http://community.timesonline.co.uk/ver1.0/Direct/Process'); } Cartoon More cartoons Peter Stothard
The Editor of the TLS writes on books, people and politics
A Don's Life
Mary Beard of Cambridge and the TLS on culture ancient and modern
American politician: don't feed the poor, they'll only reproduce Comment Central MOST READ MOST COMMENTED MOST CURIOUS Most Read Skip Most Read Today The secret lives of married men Brad Pitt and Angelina Jolie no more as... The worst thing about the smoking ban Two Britons among 90 feared dead in... MOST COMMENTED Skip Editor's Pick Today if(isArticle == "true" && articleHeadlines.length!=0){ for(var j=0; j=45){ headline = articleHeadlines[j].substring(0,44)+"..."; } document.write(""+headline +""); } }else{ fSubmitMostCommented('http://community.timesonline.co.uk/ver1.0/Direct/Process'); } MOST CURIOUS Skip Most Curious Today A whisky on Burns Night? How about a wee... Royal Society meet to discuss if... Evidence of Stone Age amputation forces... Charlie Simpson, 7, raises £50,000 in... Focus Zone Need to Know:
Industry sectors news at a glance. Interactive heatmap, video and podcast
Winter Sports:
Get ready for the winter sports season, with our resort guides and snow reports
Mapping Business:
We are backing British business, what is the confidence of the nation and what businesses are succeeding?
More reports:
Enjoy further reading from Travel to Fashion, Business to Sport, discover more
Need to Know Winter Sports Mapping Business More reports Births, deaths, marriages
Place your announcement
Business Directory
Search for local businesses & services
Crossword Club
Sign up today or try one of our free demo crosswords
Free CV Review
Sell yourself! Have your CV reviewed by experts
Announcements
Search The Times Births, Marriages & Deaths
Online Sudoku with daily prizes Find a Lawyer
Cut your legal costs
Classifieds Cars Jobs Property Travel Cars Skip Cars of the Week Land Rover Range Rover
59/10 £87,990 West Yorkshire
Ferrari Enzo Coupe
2007 £POA Surrey
Car Insurance
Be Wiser Insurance The best policy at the best price Be Wiser Insurance
Great car insurance deals online
Car Insurance
Search for more cars and bikes Jobs Skip Jobs of the Week LEP GENERAL MANAGER
£COMPETITIVE Transformation Learning Partnership Six-figure package
Head of Democratic and Partnership Services
£82,000 Calderdale Council North East
Assistant Director – North
£60K - £70K Turning Point Yorkshire, North East, North West
Non Executive Director (Sales and Marketing)
£20,000 UNITED KINGDOM HYDROGRAPHIC OFFICE
Search more Jobs Properties Vitet, St.Barth�lemy
Tranquil setting in the hills of Vitet and spectacular views. € 4.200.000 EUR
Bridges Wharf, Battersea
Award-winning riverside development, SW11. Luxury apartments for sale from £350,000.
Mayfield Grange, Sussex
Find out more about our luxurious apartments and houses for sale�in the heart of Sussex.
Looking for a Mortgage?
See your free Experian credit report beforehand
Search for more properties Holidays Skip Travel of the Week 4* Jersey break from only £159 by sea; £219 by air
Includes 3 nights at the 4* Radisson Blu Hotel with breakfast and a FREE upgrade to a seafacing room, car hire and travel from the UK
Royal Caribbean January Dubai�Ultimate Sale
New Dubai & Emirates Cruises with extra free nights in the Traders Hotel Dubai on selected cruises from £799pp!
Great Travel Insurance
Get covered on your travels with a superb range of policies at great prices. Visit InsureandGo.com
Warm white sands, clear blue sea.
Wintersun -�inspiration for your winter holiday
Search for more holidays Place your advert now
Search Ad Reference:
Where am I?
Home Comment Columnists Guest contributors Contact us Back to top NewsCommentBusinessMoneySportLife & StyleTravelDrivingArts & EntsArchive Times Online Times Archive Google TLS Archive
Contact our advertising team for advertising and sponsorship in Times Online, The Times and The Sunday Times, or place your advertisement.
Times Online Services: Dating | Jobs | Property Search | Used Cars | Holidays | Births, Marriages, Deaths | Subscriptions | E-paper
News International associated websites: Globrix Property Search | Milkround
Copyright 2010 Times Newspapers Ltd.
This service is provided on Times Newspapers' standard Terms and Conditions. Please read our Privacy Policy.To inquire about a licence to reproduce material from Times Online, The Times or The Sunday Times, click here.This website is published by a member of the News International Group. News International Limited, 1 Virginia St, London E98 1XY, is the holding company for the News International group and is registered in England No 81701. VAT number GB 243 8054 69.
Blogs
The Editor of the TLS writes on books, people and politics
Mary Beard of Cambridge and the TLS on culture ancient and modern
Industry sectors news at a glance. Interactive heatmap, video and podcast
Get ready for the winter sports season, with our resort guides and snow reports
We are backing British business, what is the confidence of the nation and what businesses are succeeding?
Enjoy further reading from Travel to Fashion, Business to Sport, discover more
Place your announcement
Search for local businesses & services
Read Full Article »