In a significant development, the Chief Economist from the Organisation for Economic Co-operation and Development (OECD) has advised Osborne to start revising his spending cuts as their impact on economuc growth becomes clear.
This view has been supported in recent weeks by large falls in consumer confidence and poor figures for household spending and business investment.
Interesting that the OECD, which has been a supporter of austerity-heavy budgets across the continent, is now revising their view. This, of course, will come of little or no surprise to the high-profile experts who have been warning for some time of the folly of the sledgehammer approach to tackling public deficits, such as the Nobel-prize winning economists Paul Krugman and Joseph Stiglitz.
Krugman calls the Osborne approach "expansionary austerity" - the idea that dramatic spending cuts can 'free' business to grow the economy. In the past he has attacked this "delusional" approach:
"Slashing spending in the face of high unemployment is a mistake...Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks".
Krugman has also pointed out that Osborne's last budget made assumptions that as state deficits would be cut, private debt would rise rapidly:
"The only way the economy can avoid taking a hit from government cuts is if private spending rises to fill the gap — and although you rarely hear the austerians admitting this, the only way that can happen is if people take on more debt. So we have the spectacle of a government that inveighs against the evils of debt pinning all its hopes on an assumption that over-indebted households will dig their hole even deeper. All in all, it’s quite a spectacle. It would be funny, except that millions of people will suffer the cost of this folly".
UPDATE FRIDAY 27 MAY:
The Guardian has picked up this theme today in its editorial.