Osborne's busted flush

Despite sunshine stories from the Chancellor and coalition ministers that the economy is essentially healthy and ready to bounce back, reality has a habit of sneaking up and biting him on the backside.

Osborne forecast breezily that public-sector borrowing would be kept down in 2012-13 to £120 billion. The likelihood is that it will be nearer £130bn.

This isn't simply a matter of unforeseen circumstances or bad luck. His entire economic plan is flawed.

The financial geniuses of the Tory and Liberal Democrats, cosied up to each other in the conservative coalition, have united behind the Chancellor, backing his austerity and privatisation agenda.

These mountebanks have played the ultimate three-card trick in persuading the public that the economic crisis set off by the private banking sector originated in excessive expenditure on public services.

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So the financial institutions that bankrupted themselves through speculation on subprime mortgages, dodgy loan packages and derivatives have been bailed out through direct injections of cash and provision of quantitative easing.

This has allowed the banks' company directors and shareholders to continue to enjoy massive salaries, bonuses and dividends at taxpayer expense.

But someone has to pay off this huge national debt and - guess who? - it's the working class again.

The coalition has aped the example of late unlamented Labour chancellor Alistair Darling who had already begun attacking public services and it has gone still further.

Its line is that hacking back the public sector, cutting jobs and imposing real-terms wage cuts offers the opportunity to the private sector to take up the slack.

This might seem logical to public schoolboys reading their orthodox economic textbooks, but it bears no relation to the real world.

Many small businesses depend for contracts on local authorities, public services and national government. When the contracts dry up, so do they.

Osborne, Vince Cable and expenses fiddler David Laws claim that tackling the deficit has to be the government's priority, just as the EU and its member states do, backed up by the World Bank and the European Central Bank.

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The net result is a continent-wide recession as demand is sucked out of economies, depressing trade, neglecting growth and impoverishing the working class and the poor.

This week's double blow by Premier Foods and Vion to pull the plug on food factories in Britain, affecting 14,000 jobs, serves as a reminder that unemployed workers no longer pay income tax and insurance, having to claim benefits and increasing pressure on government finances.

This self-evident colossal failure of government policy ought to be a godsend to the Labour opposition, enabling it to pose a viable alternative.

Labour shadow chief secretary to the Treasury Rachel Reeves is adept at identifying government shortcomings, insisting on "urgent action … to create the jobs and growth that are vital to get the deficit down."

To be taken seriously, Labour must move beyond its frankly cosmetic proposals to tackle the current situation.

It should ditch its "too fast, too deep" mantra in favour of a blanket rejection of the cuts agenda and acceptance that a return to public ownership is necessary, especially for railways and public utilities.

Without a clear alternative to the Tory-Liberal Democrat austerity programme, Labour will lack credibility.