Britain: could do better

The sense of relief in the Treasury yesterday was palpable as the Organisation for Economic Co-operation and Development (OECD) gave the Coalition's economic strategy its broad approval. Describing the fiscal consolidation as "ambitious but necessary", it nevertheless downgraded its growth estimate for this year from 1.7 to 1.5 per cent, which makes the official forecast from the Office for Budget Responsibility of 1.9 per cent look distinctly rose-tinted. The report was also curiously cavalier about the resurgence of inflation, telling the Bank of England that it should keep interest rates low, regardless of the inflationary impact. That strikes us as risky advice.

George Osborne was able to claim that the OECD had endorsed the central tenet of his economic policy – that a credible plan to deal with the budget deficit is fundamental to a sustainable recovery. But the Chancellor also admitted that the Government still has "much more to do". Indeed it does. Yesterday's unemployment figures were at a 17-year high, while the most recent growth figures, for the last quarter of 2010, actually showed the economy contracting sharply. With the OECD warning of "headwinds" from weak income growth and a fading rebound in world trade, we are in for a tough couple of years.

That makes it all the more important that Mr Osborne uses next week's Budget to deliver a real strategy for growth. He conceded yesterday the need for a "more sustainable model of economic growth" – this should include a lighter regulatory burden and a more competitive tax regime. The Coalition has so far enacted more laws than it has scrapped, while personal tax levels are among the highest in the developed world. The Chancellor cannot argue that there is not plenty of room for improvement.

Telegraph