Italy and Britain are the only two major economies which are experiencing a double-dip recession. The economy in this country is now smaller that it was at the general election. When Labour lost power, the economy was growing strongly. The economy in fact shrank by 0.7% in the last quarter, a huge amount with very bad news for jobs and businesses.
The coalition government says its economic strategy is supposed to boost confidence and encourage investment. However, a report published this week shows the government policy is having the opposite effect by deterring spending.
The double dip recession will see the UK's long-term Gross Domestic Product growth rate drop to just 1.7% by 2015 – its lowest level since the second world war and the equivalent of £165bn in lost output over 15 years – according to the Institute for Public Policy Research (IPPR).
At the weekend, Boris Johnson, the mayor of London, urged greater emphasis on growth and appeared to contradict David Cameron's warning that the crisis in the eurozone could last up to eight years.
The International Monetary Fund has downgraded its forecast for UK growth to just 0.2% in 2012 and 1.4% in 2013.
The IPPR said that there needs to be a change in fiscal policy, featuring temporary tax cuts, additional infrastructure spending and further quantitative easing to boost demand and bolster anaemic investment from the private sector.
A two-year 2p cut in National Insurance would inject £14bn into the economy and could be paid for by the introduction at a later date of a permanent mansion tax on homes worth more than £2m, recommended the report. And the government could take advantage of historically low interest rates by borrowing £30bn for investment in infrastructure at a cost of just £150 million a year.
Using official statistics and Office for Budget Responsibility forecasts, the report calculated that by 2015 average growth over a 15-year period will have declined to 1.7%, compared to a historic average of 2.4% and a peak of almost 3.5% in the middle of the last decade.
The report called on Tory Chancellor George Osborne to ditch his plans to eliminate the national deficit within five years, and be prepared instead to increase borrowing in the short term and spread deficit reduction over a longer period.
Rather than creating a favourable environment for business investment, as the chancellor claims, the IPPR said that the government's austerity measures have made companies and individuals reluctant to spend because of uncertainty about the future.
The report also called for a Jobs Guarantee of work at minimum wage levels for anyone unemployed for more than 12 months, at a cost of up to £2.5 billion a year, in order to boost demand and stop people dropping out of the labour market altogether.
With the recession getting ever deeper, it is clear that the government’s economic policies have failed. The IPPR report is a timely reminder that we need a plan for jobs and growth.