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The Chancellor's view: advice for Osborne

By Emma Thelwell

Updated on 24 May 2010

As Chancellor George Osborne lists £6bn of spending cuts, Britain feels the first swing of an axe which is to deliver much nastier cuts. Here, the old guard offers some advice as the public braces itself.

Former chancellors offer advice to George Osborne as he outlines £6bn of spending cuts (Getty)

Rule number one: don't get the bloody forecast figures wrong.

Osborne has given up his right as Chancellor to control economic forecasting and has appointed a new Office of Budget Responsibility (OBR) to do it for him.

Sir Alan Budd, leader of the OBR, has already tempered expectations. "We are not claiming that we'll get the fiscal forecast right, but every judgement will be ours," he said earlier this month.

Budd's is an unenviable job, but with the euro zone in crisis the threat of an International Monetary Fund (IMF) bailout looms in the distance.

It is imperitive therefore to get "sensible" forecast figures, Denis Healey warns.

The former Labour chancellor remains bitter that the Treasury "got the bloody figures wrong" in 1976, forcing him to tap the IMF for the biggest loan it had ever given.

The Treasury however, had actually exaggerated Britain's economic misery – leaving Healey only using up half the IMF loan, and paying it all back before he left office.

While seeking an IMF bailout is "very bad for your reputation", Healey said he was not ashamed of the move.  

"All this 'cap in hand' business is baloney," he said in an interview with Channel 4 News on the eve of the general election.

"It's like joining an insurance company, but if you have to use it so much the worse," he added.

Nevertheless, the economic misery of the 1970s ended in industrial anarchy.

Indeed, dealing with the IMF you must be prepared for long, tough negotiations said Healey - who at one point threatened to hold a general election if the IMF continued to order cuts.

Just weeks ago Mervyn King, the governor of the Bank of England, warned privately that the winner of the general election will have to implement such tough calls on the economy, it will be out of office for a generation.

King meanwhile has written his first letter to Osborne to explain why inflation remains above the 2 per cent target.

Norman Lamont – arguably the most unpopular chancellor of recent times – was also caught out by faulty figures.

"In 1992 I thought the budget deficit would be £30bn but it turned out to be £70bn, and worryingly, the economy started to recover in 1992 but the deficit carried on deteriorating," he told The Times.

The problem was worse than he thought, Lord Lamont admitted, adding that he was "worried, frightened, but determined to do something about it".

Prime Minister David Cameron may recall this - he acted as an advisor to Lamont as he presided over 1992's Black Wednesday currency crisis.

While Osborne is not expected to call in the IMF, he will be drawing up a long list of severe measures, says Lord Turnbull, the former cabinet secretary and Treasury permanent secretary.

Ring fencing
Turnbull warned against ring fencing departments for spending, in a recent interview with The Times.

"Ring fencing is a very bad idea. You can't make it work if you ring fence the health budget because that will mean the burden on the rest is just too difficult. Similarly, there must be no exemptions if you freeze or cut pay," he said.

Lord Digby Jones, former head of the CBI, agreed. "Don't tie your hands," he said in a note to the Chancellor.

Ring fencing NHS spending and overseas aid is not the answer, rather look at how much you spend, he told the BBC.

Gravy train
Lord Digby also warned Osborne to "never forget where the money comes from".

Pointing to the business sector, he appealled to the chancellor not to bash the banks – which he said account for 24 per cent of the entire tax take for the UK.

Business aid however, is expected to bear the brunt of the cuts, it emerged today. Business Secretary Vince Cable has agreed to find £900m in savings over the next month, it was reported.

In the run-up to the election Osborne warned an 'age of austerity' was looming, and today Treasury Chief Secretary David Laws sent "shockwaves" through government departments as he outlined spending cuts of more than £6bn.

Would this be Alistair Darling's advice, asks economics editor Faisal Islam
Former chief secretary Liam Byrne's brief note to his successor achieved a great deal of notoriety – but how much better would it have been if Alistair Darling's parting thoughts to George Osborne had also been leaked.

Faisal Islam imagines how that letter could have looked:

Dear Boy Chancellor,

We never got on. You kept on getting leaks of our tax plans from Tory-friendly Treasury staffers. That was a low blow. And then you tried that very clever rhetorical outflanking of the Labour party on bashing the bankers. Laughable!  Read more...

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