Chancellor of the Exchequer can expect to be popular during a recession. George Osborne has had a difficult few months
but he has stuck resolutely to his guns and deserves support.
recession in the early 90s, I got into trouble for spotting “green shoots” when
most people couldn’t see them.
Later, it turned out it was correct but it didn’t do me any good. George Osborne will wisely be careful
about any predictions.
is unknowable. But there are some reasons
for modest optimism. Surveys of
manufacturing and services industries have been encouraging. The private sector has been generating
more jobs than the public sector has been shedding. Employment has increased by 236,000 in the last three months.
Job market participation – those in work or looking for work is at a record
high. No nation other than Canada
in the G7 has such a high employment rate. I stress these numbers because they are
at odds, and more encouraging than the GDP figures which many feel may be
overstating the recession.
The fall in
inflation is also encouraging. Consumer
spending has been severely squeezed by inflation out-stripping wage increases. A further fall towards the year end
will give a boost to consumer spending and help the prospects for recovery.
Tories think the Government’s rhetoric places too much emphasis on deficit
reduction and not enough on some ill-defined “vision for the future”. When I
hear calls for more vision, I remember Senator Robert Dole’s retort when told
he “lacked vision”. “Vision of
what?”. Of course, deficit
reduction is a means to an end; a
wealthier, prosperous, dynamic growing Britain. But it is also the most
important problem facing the Government and inevitably overshadows all
else. Far from overemphasising the deficit too much , we are in
danger of forgetting and therefore letting the country forget, the enormity of
the crisis the Government inherited and which continues. Labour seem to think that they are
entitled to swagger back into office because this Government hasn’t yet wholly
cleaned up the enormous mess they left behind.
Government has up to now been broadly on target in its deficit reduction. In
June 2010, George Osborne’s newly created Office for Budget Responsibility
(OBR) forecast borrowing at £155bn for 2009-10, dropping to £116bn in 2011-12. In fact, there has been a slightly larger
drop than forecast. There are some
doubts whether the target for the deficit this year 2012-13 will be met because
of the slow-down in the economy. If
that happens, it is certainly not a cause for panic.
Ed Balls has
been partially successful in spreading the myth that he has been proven
right in forecasting the slow down
in the economy and even more absurdly that this is due to the Government’s “harsh”
spending cuts. It was always on the cards that we would have periods of negative growth. Britain had one of the biggest banking
crises of any country and had no equal in the large overhang of private as well
as public debt. Sluggishness in
the economy is because of the enormity of that debt. Running a higher deficit
would do nothing to improve matters.
always promise a free lunch. If we have too much debt, Labour’s answer is “Let’s
have some more” and magic the existing debt away. It is all painless, according
to them. If only life were like
sometimes get confused between the Government’s annual borrowing requirements
“the deficit” (currently around 7-8% of GDP) and the total stock of national
debt (expected to peak at around 80% of GDP). The annual deficit, of course, is the amount that we add
each year to the total debt.
Although Britain had initially a relatively low total stock of debt, our
annual deficit was at the same level as that of Greece. It doesn’t require a
mathematical genius to see that, if you go on adding to the total indebtedness
of the country at a rate of 12% or 10% per annum you could quickly produce a
result in which the country will be as deep in debt as Italy (over 100% of
slash and burn, the Coalition’s plans for deficit reduction have been carefully
calibrated. We started the crisis
with a deficit equal to that of Greece.
Not being in the euro, we have had more flexibility and today our
deficit is higher than that of Greece, France, Italy and Spain. The reality is
that the deficit reduction has been gradual and designed to not snuff out the recovery.
likes to point out that the total stock of debt of the country is still
increasing as though that is somehow criticism of the Coalition. Yes, the debt has
increased and will increase but that is because the deficit reduction has been deliberately
Conference we will hear cries for “a growth agenda” and policies to kick-start
the economy. Of course, the
Government should and, indeed, the Government is designing policies to improve
competitiveness, lift the burden of regulation and free up the supply side of
the economy. But these policies
take time. The economy is not some
motorcar stranded in a snow storm that is suddenly going to run away if the battery
is connected to a couple of jump leads. It is unrealistic demands for a kick
start that have led to too many rounds of quantitative easing by the Bank of
don’t have it within their power to “grow the economy”. But Governments make a myriad of
decisions, every one of which, adds or detracts from the prospects for growth.
There is no
room for complacency. But
Conservatives must hold their nerve.
A Labour lead of 10 percentage points at a time of austerity means
little. Neil Kinnock, a more human figure than Miliband, during the Thatcher
glory years, regularly had bigger leads. Voters don’t believe in Ed Miliband as
PM, even when he cross-dresses as Disraeli. What the Coalition is doing in difficult circumstances is brave
and right. Even if there is a period
of unpopularity there is everything to play for and history judges well those
who try to do the right thing.