George Osborne has just delivered his Autumn Statement. You can read our full analysis of the announcements on the nef blog, but there are three things you need to know about what we’ve just heard:

1. Government economic policy is failing on its own terms
The government’s Office for Budget Responsibility (OBR) has revised its forecasts for the economy downwards. In other words, the economy is doing worse now than the OBR predicted just a few months ago, ago, shrinking by 0.1% in 2012.

The shrinking economy means the Chancellor has failed in his sole economic task to eliminate the deficit and reduce the national debt by 2015.

The reason for this is simple: austerity is the wrong response to the recession. Spending cuts cripple real economic activity, shrinking the economy and leading to falling tax receipts. The government’s failure is self-inflicted.

2. The wrong people are paying for the economic crisis
After the backlash from the Budget, the Chancellor has been quick to stress that we are all in this together. Individual measures like the cut in pension tax relief aside, the Autumn Statement like the Budget before it is regressive: it will hit the poorest hardest.

This is most stark with the decision to freeze welfare spending in real terms. This raises relatively little revenue – just £3.7bn –and will have a devastating impact on hundreds of thousands of people already struggling. Meanwhile it was confirmed that corporation tax will fall to 21% by 2014.

The Treasury’s own distributional analysis shows how regressive this Autumn Statement is. Everyone loses money. But the bottom 30% will lose double what the top 30% do.

3. We need an economic strategy with the right priorities
The Statement announced £5bn of extra capital spending paid for by further cuts to already had-pressed government departments. Cutting current spending to pay for capital investment when the government can borrow at near-zero interest rates is economic mismanagement. Borrowing to invest is what businesses do all the time. There is no good reason why government should not do the same.

Nor is much of that capital investment going to prepare us for the future. Building extra roads will increase our dependence on cars and oil, and offering tax incentives for fracking will do little to tackle climate change.

The policies are wrong because the priorities are wrong. We need an economic strategy that tackles unemployment, delivers good jobs and a sustainable future. In the new year we’ll be publishing a strategy that does just that. But in the meanwhile please share this email – let people know the economy is on the wrong track.

James Meadway
Senior Economist

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