A response to Compass Plan B

2nd February 2012

I have been asked to review a suggested Plan B to remedy the economic crisis in response to the economic strategy set out by Chancellor of the Exchequer George Osborne, as there is a growing movement against the austerity measures he has put in place. Plan B was put together by a leading left wing think tank called Compass. The report supports a view of increased spending to encourage growth and reduce unemployment. An article by the Guardian has stated that over 100 leading economist have supported the report.

Plan B link here.

Video about Plan B by Compass.

The synopsis below gives my opinion on the viability of the proposal.

My response to Compass's Plan B report.

My first concerns with the general emphasis of the paper (which seems to be to spend more money through the public sector in an attempt to stimulate growth) is the ability, or lack thereof, of the government to borrow in the future or for them to even pay off the existing debt. This situation is extended by the downgrading of sovereign debt, seen across the rest of Europe for countries that either do not adopt austerity plans or do not fulfil the requirements of austerity plans they have committed to.

This has been a common occurrence in the Eurozone and even the larger wealthy countries, such as France and Austria have been downgraded (1). This indicates credit rating agencies are not bluffing when it comes to debt downgrades and Britain will be no different if it does not stick to its austerity plan. If such a downgrade was implemented the cost of borrowing in the UK would increase making debt repayments more expensive.

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More from Mindful Money:

What George Osborne should be doing to help save the economy

Facts are stubborn, but statistics are more pliable

Where next with the financial crisis? Pension Fund default?

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