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The wrong cure

Economic myths and realities

Our guide to current economic myths – and the essential articles and blogs that debunk them. Let us know if we've missed anything.

MYTH 1: The government's deep, rapid spending cuts are the best (or only) way to shrink the deficit.

REALITY: Cameron's government inherited a growing economy and falling deficit. Since then the economy has stagnated and the deficit has grown.

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MYTH 2: Osborne has saved us from the same fate as Ireland, Portugal and Greece.

REALITY: Britain wasn't in the same position as Ireland, Portugal or Greece to start with. But by mimicking their failed austerity policies, Osborne is taking us closer to economic disaster.

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MYTH 3: The cuts aren’t that bad.

REALITY: Pro-cuts commentators fiddle the figures by adding the "costs of recession" – extra debt interest and dole payments – onto public service spending. Strip out the former and it's clear the latter is being cut savagely. 

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MYTH 4: Government policies are promoting growth.

REALITY: Official figures show the government has strangled a tentative recovery. GDP forecasts have been repeatedly revised down, and the government's "pro-growth" initiatives are feeble.

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MYTH 5: The government is rebalancing the economy and will make us less dependent on debt.

REALITY: Osborne claims to be against high levels of both public and private debt. But official forecasts for increased growth rely on us taking on much more personal debt.

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MYTH 6: Increased exports will compensate for cuts.

REALITY: "Export-led recovery" sounds like a great idea. So great, in fact, that everyone wants to do it – and therein lies the problem. Furthermore, the UK's main export markets are failing economies like Ireland.

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MYTH 7: The government is tackling the banks with the same urgency that it is cutting the public sector.

REALITY: Osborne's bark has proved much worse than his bite when it comes to clamping down on obscene bonuses or structural reform to avoid another banking crash.

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MYTH 8: The current crisis is the result of the last government's overspending.

REALITY: As the graph in our "How big is the deficit?" section shows, it was the recession – and the resulting collapse in tax receipts – that caused the deficit to soar. 

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MYTH 9: Britain's public debt is exceptionally high – historically and in comparison with other countries.

REALITY: Neither claim is true, as illustrated by our “How big is the problem?” graphs and the links below.

MYTH 10: The theory of "expansionary fiscal contraction" explains how cuts will help the economy grow.

REALITY: Even the IMF – in a comprehensive study – found the evidence for this threadbare.

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MYTH 11: The way to promote growth is to cut workers' pay and conditions.

REALITY: Analysts from across the political spectrum agree that falling wages for those on low-to-middle incomes helped cause the crash.

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MYTH 12: Spending cuts are less harmful to the economy than tax rises.

REALITY: Official figures show spending cuts have a larger impact on GDP than tax rises. They also show policies that take money away from lower earners hit the economy harder than those that target high earners.

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MYTH 13: Corporation tax cuts promote growth.

REALITY: Osborne's keenness for corporation tax cuts sits oddly with his professed concern over the deficit. There are arguments for other tax cuts – like VAT – but research shows only a weak relationship between corporation tax and growth.

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MYTH 14: The 50p tax rate on earnings over £150,000 will lead to a lower tax take for the Treasury.

REALITY: Advocates of this argument assume a substantial number of high-rate taxpayers will leave the UK due to this tax. There is no evidence for this.

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MYTH 15: Global opinion agrees with Nick (and George and Dave).

REALITY: Many other governments and international organisations – even conservative ones – balk at the UK's dash for austerity.

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MYTH 16: We can't blame the government for our stagnating economy – other countries are in the same boat.

REALITY: Britain has slid down the global growth table and now languishes near the bottom.

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MYTH 17: We’re all in this together.

REALITY: Our section on "How cuts will make Britain more unfair" summarises the unequal effect of the cuts, with more detail provided by the links below.

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Cuts are not the cure
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