Osborne's weather excuse doesn't cut any ice

Yes, the snow had an impact. Undoubtedly. But even without it the ONS concedes that 'growth' would have been "flattish", i.e. no growth.

The reality is that George Osborne's own 'crowding out' explanation for the crisis and recovery strategy (as previously denounced by LEAP) undermined the economy in Q4 of 2010.

As I said when speaking to reps from the Northern Irish public sector union (NIPSA) earlier this month, there are 3 problems with Osborne's economic strategy (you can download my powerpoint presentation from the NIPSA website).

Firstly, is Osborne's own 'independent' Office for Budget Responsibility, which said in June 2010 that if 600,000 public sector jobs were cut, the knock-on effects would mean 700,000 private sector jobs would be lost. In the CSR in October he said that actually only 490,000 public sector jobs would go. However, the Chartered Institute for Personnel and Development looked at his figures and estimates that in fact there will be 725,000 public sector job losses as a result of the £80billion cuts.

Secondly, unemployment is rising. Long-term unemployment (those unemployed 12 months or more) is now at its highest since February 1997 and youth unemployment is the highest on record. The private sector is not 'crowding in' to the space left by the public sector.

Thirdly, Ireland. What Osborne is implementing in the UK has been tried in Ireland: it doesn't work. The public sector been slashed, corporation tax is lower than almost anywhere else in Europe and the economy is in a death spiral.

In Q1 of 2011, we have the VAT rise, rising inflation, rising unemployment and declining capital spending from central and local government to impact on the figures. And there's be no snow for George to hide behind.

Osbornomics unravels

Look beyond the big society rhetoric and there's a very flawed theory at the heart of George Osborne's chancellorship. It was outlined in the June 2010 Budget, when Osborne advoacted:

"An economy where the state does not take almost half of all our national income, crowding out private endeavour"

This 'crowding out' theory managed to infiltrate the independent Office for Budget Responsibility which stated in June that although the government's cuts would cost 600,000 public sector jobs, with a knock-on loss of 700,000 in the private sector, the private sector would also create 1.6 million jobs over the same four year period (a net gain of 300,000 jobs).

However, a report published by Pricewaterhousecoopers today shows in fact that the private sector will only create 1 million jobs over the four years, so that becomes a net loss of 0.3m jobs. It undermines Osborne's claim that cutting the public sector can be compensated by private sector growth (definitely not in a weak economy). I think the PWC report still might be a bit optimistic.

Data released since the Budget seem to be proving the PWC right and Osborne wrong. Both the IMF and the Bank of England have downgraded UK growth prospects. As the Morning Star points out, both the British Chamber of Commerce and British Retail Consortium have warned that growth in the service sector had been "slow" and was showing no signs of picking up before the VAT rise in January next year.

BCC chief economist David Kern said: "The dismal performance of the service sector is particularly disturbing since it occurs even before VAT is due to rise to 20 per cent."

It goes to show cutting the public sector won't 'make room' for the private sector, but will sap demand and weaken the private sector too.

For an excellent brief history and demolition of 'crowding out' theory see Aditya Chakrabortty's piece in the Guardian earlier this month.

Update: There's more on this story in the Morning Star, with quotes from Len McCluskey and Dave Prentis.