Dear George… Advice to George Osborne

Dear George,

Cutting public spending when there is no other source of growth in the economy is a sure-fire strategy for recession. As if the lack of recovery wasn’t bad enough, the lack of growth also scuppers your deficit-reduction goals – the very reason for austerity in the first place. Like throwing away the engine to trim a car, you have offset the lack of revenue recovery by slashing capital spending. The results are already being seen in the forecasts: there will be no spurt of growth to regain the losses of the recession. The best we can hope for is a slow crawl along the bottom.

Is there a way out? Initiatives such as the National Infrastructure Plan and the Green Investment Bank aim to mobilise private money behind growth-boosting capital projects, but they lack the financial backing to have a real impact. The government has promised less than £10bn, a fraction of the size of the cuts to public investment. Why not more? Since well-chosen infrastructure and energy-saving projects will be revenue-generating, increasing capital spending does not even have to come at the expense of a higher deficit.

With a chancellor who believes that budgets can be balanced by cutting expenditure without simultaneously boosting demand, we are stuck in a vicious cycle. Unless there is an immediate change of course, your legacy will stare at us in the form of downward-sloping graphs for a long time to come.

Robert Skidelsky is Professor of Political Economy at the University of Warwick and author of How Much Is Enough? (Allen Lane).

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