21 Apr 2012

Chancellor: We have completely won the argument on austerity

It would be perhaps unsurprising if George Osborne had lost some of his swagger. It has been a brutal month for the chancellor of the exchequer as various aspects of his budget unravelled.

For the first time in that month, overnight in Washington DC, I had the chance to ask him some questions about the decision to expand loan funding to the IMF, the economy and the month of shambles. He is confident that the £10bn extra funding for the IMF will be accepted in Britain even as it is not subject to a further vote.

“I think the parliamentary support is there. More importantly, I think the public understands that Britain has got to engage with the world and sort out the world’s problems because if we don’t, then we are going to face real problems here in Britain,” he said, adding “

You can either pull over the bedcovers and pretend these problems don’t exist or we can engage with those problems, require more of the Europeans which is what we’ve done and make sure the international institutions are strong enough to deal with whatever is strong enough.”

Here in DC, the chancellor seems particularly relieved that key backbenchers and the chairman of the treasury select committee have backed this move. It does rather appear that the size of the loan has been determined at the maximum point which avoids the need for a vote. Still the widespread international backing provides some support, even as the US avoided contributing. You might think that the chancellor would have avoided further controversy after this torrid month of pasty, granny, charity and caravan tax revolts.

I ask him if it looked like a shambles from where he was sitting?

“I’d be the first to accept that the headlines haven’t been great. But I don’t think the economics have been bad. I think actually the policies have not only held up, but people now say hold on, here’s a country, Britain, that is cutting its business taxes, sorting out its income taxes to make it competitive, giving a tax cut to working people across the country” he said, adding “You can either pull over the bedcovers and pretend these problems don’t exist ,or we can engage with those problems, require more of the Europeans – which is what we’ve done – and make sure the international institutions are strong enough to deal with whatever is thrown at them.”


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In the chancellor’s view “good politics follows good economics”.

“I am not in, as the chancellor of the exchequer, a daily opinion poll contest and a daily popularity contest. I will tell you what I am engaged in. A daily contest with the rest of the world to make Britain competitive to bring jobs to Britain. Ultimately my responsibility to the British people is to do what is necessary to get the economy moving, not to write tomorrow’s newspaper headlines or write Channel 4 News’s headlines,” Osborne said.

Interestingly, the chancellor seems to think that many of the disparate battles of the past few weeks have been proxy battles against the scrapping of the 50 per cent tax, suggesting he is fearful that the public no longer buys “we’re all in this together.”

Osborne said that he knew going into this budget that cutting the top rate of income tax was not a particularly easy thing to do politically, but it was the right thing to do economically.

“I’m always prepared to do the difficult thing, even if they don’t deliver the ideal newspaper headline the next day,” he told me.

Near the end of the interview in the UK delegation of the IMF, I did start to think that the chancellor was slightly contrite and had been rather bruised by the past few weeks and the collapse in the poll numbers. Perhaps the London mayoral elections are keeping spirits high. But at the end his swagger returned.

I asked him if he shared the view expressed by many at this IMF conference that austerity was going too far in the Eurozone.

“When it comes to Britain, I think that argument is now completely won, in other words the argument that we had to deal with our debts. Those who say Britain should ease off on dealing with its debt I think are now on the margins of the debate,” he said.

Completely won? Even as some polls has his party 13 per cent behind just a month after being ahead?

Alas I had run out of time. But the Chancellor is counting that the self-inflicted blows of the past month has not done permanent damage to his cause. He could very much do without a plausible return to recession when Gross Domestic Product figures come out on Wednesday (even though it might be written off as a statistical anomaly. Again!)

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18 reader comments

  1. Eric Greenwood says:

    He is in Cloud cuckoo land..

  2. dave bowman says:

    still the budies of eton do not give a poo about the people of “normal working backgrounds ” But rely on lower middle class plastic tories, middle brass tories,upper silver tories, and your 24 carrot gold, platinum ,etc tories for there survival.The lower class tory voters {paper, plastic etc)who like to think they belong to this party are only being fooled into wasting a vote on a party that wants to retain there elitism way of life.if you work paid a pittance Your not a tory.

  3. Ray Turner says:

    I don’t think its true to say the Tories have completely won the austerity argument.

    There wasn’t really an argument.
    The Government had no choice…

  4. Saltaire Sam says:

    He’s even more deluded than I thought he was

  5. Hugo says:

    ….whatever …but if Labour were in Government following the last election we would be well down the same road as Greece by now…we are looking too closely at the navel and not the big picture …the current Government are on the right track …they just have to get some ‘common touch’ at the front and lead with ‘common sense’…. the elephant in the room is Clegg….

    1. Philip says:

      No it wouldn’t. First – a Labour government would have done broadly what this one has done in terms of spending cuts. Second, if it cut a bit less, the economy might have been in less of a recession, so government debt wouldn’t have grown because of higher unemployment & less tax revenue. Third – we aren’t in the euro. The pound would have floated downwards – making imports more expensive & exports cheaper (as well as lowering the value of what we owe) which also would have stimulated UK exports & thus the economy. Fourth – they would have concentrated on the economy rather than unnecessary, chaotic & expensive reorganisations of the NHS and education. About the only honest thing about this government is that they’ve quickly stopped using the mantra that we’re all in it together because they know we know that there are swathes of society they don’t care about. I don’t want someone giving the “common touch” to policies that disproportionately hit those in society least able to cope with them. And – as usual – Clegg is totally irrelevant here.

    2. e says:

      Same as Greece! How so, given we have our own central bank; and, GO is now following AD’s deficit reduction time frame? ….Albeit after first adding to the damage financiers have done.

    3. Hugo says:

      …Philip …true …we are not ‘all in it together’ when so many believed the Government of the day had delivered an economic miracle (a bubble)and over-borrowed, while others saw the storm on the horizon and cut back on spending and saved if possible….the problem with both Governments is they have made the prudent suffer and a large proportion of the reckless rely on the taxpayer to rescue them…

      Clegg is not irrelevant…this Leader of a minority has too much sway through the blackmailing tactics, which any coalition regime made up of politicians, dictates….

    4. Andrew Dundas says:

      Hugo, No one foresaw the storm. We were assured by Alan Greenspan (Chair, Fed Res) in 2004 that the US had no cause for concern that the yield curve was flat-lining. He confessed to the Senate in 2009 that he hadn’t appreciated that ‘sophisticated New York bankers’ would lend to people they could tell wouldn’t be able to re-pay.
      The idea that the UK was over-borrowed is an electoral myth.
      What actually happened is that US Auditors in 2007, demanded evidence of the market value of US mortgage loans that NY Banks could not provide. That caused the LIBOR market to close down as finance houses began to doubt the solvency of their counter-parties. That contagion spread around the world and hit London because we have Europe’s largest money market.
      If we had over-borrowed, firms and household bankruptcies would be exceptional. But they are not.
      Nor has there ever been sign that UK Government Bonds are in as much trouble as, say, French sovereign Bonds.
      The other contributory cause was reckless behaviour of 2 Edinburgh-Banks (RBS & BoS) and some minors such as B&B, & small building societies.
      UK Gov debt & credit remain strong. As always.

  6. Andrew Dundas says:

    Britain was in a ‘mess’ in 1997. Instead of whining on about the fact that our schools were falling down, hospitals couldn’t cope with patient numbers and trains fell off the lines, government got on with it.
    Only the USA is showing signs of nascent recovery. Maybe it’s because the USA doesn’t tax spending so much? Sales taxes in most US States are 6% or less. That compares with the swingeing 20% Merkel & Lord Snooty have imposed, and that Sarkozy promises he’ll inflict on Frenchmens’ dinners.
    Perhaps we’ll end up like Japan? Where stagnation has become permanent despite ultra-low interest rates. Oh dear!

    1. Hugo says:

      …Labour were handed the strongest economy in Western Europe in 1997 and over thirteen years trashed it…yes the government of the day really did get ‘on with it’…

    2. Andrew Dundas says:

      In 1997-98, UK taxpayers had to fund interest payments on government debt of 5.2% of UK’s GDP and the highest unemployment in the G7.
      Nowadays we fund government debt interest at about 3% of UK GDP. Even less if we discount interest due on BoE owned Bonds.
      Britain survived two major worldwide downturns – in 1998 and 2000-2001 – without faltering.
      In 1997 schools let in the rain and were over-crowded, hospitals left people to die on their waiting lists and trains fell off their tracks from lack of maintenance.

      Some strong economy in 1997!

    3. Philip says:

      Hugo – what baloney! The main problem was a global recession (unlike the recession of the early 1990s manufactured here at home by Nigel Lawson). The Tories supported Government spending until 2008. We had a period of substantial economic growth & essential investment in public services & infrastructure which had been trashed by the previous Conservative governments. Moreover, we never had the strongest economy in Western Europe – we have a US type of hire & fire economy with far too many “McJobs”. The European powerhouse has always been Germany based on its more diverse, technically excellent, export-led economy. It has shown itself to be resilient in a way ours hasn’t. Though an ultrasolution of relying on cutting debt as the only way of dealing with our problems has left us with flat growth at best & hoping that the Chinese will invest here, buy more, etc. The problem with Labour is that they didn’t turn away from the Thatcherite neocon economic model (as enthusiastically adumbrated by Osborne, etc) when they should have re-balanced the economy. And if you believe Orborne & co would have done any differently you are living in cloud-cuckoo land.

  7. Hugo says:

    …hah..e…having our own Central Bank would not have slowed Labour spending…it would have been more spending to save their self made deflating bubble….as our ‘friend’ Liam Byrne said in his letter to David Laws ‘Dear chief secretary, I’m afraid to tell you there’s no money left,’….yes ‘slow the spending’ …that’s a Labour myth…there is no money to spend…don’t think you are in a safe lifeboat because you have your own Central Bank…and don’t blame the financiars …they were Labour’s friends and then fall guys…but I am sure Labour will have a chance soon to finish us off for all time…

    1. Charles Jurcich says:

      Hugo,
      I think you’ll find that letter was just an in-joke that many treasury ministers leave to their successors, which in the case was abused for cheap political gain by the Tories.

      The joke being that the government can’t actually run out of money, as it is the monopoly issuer of the stuff.

      The practice of governments issuing debt to match their deficits is just a vestigial left-over from the original Bretton Woods agreement, and before that, the gold standard. It’s no longer necessary since we floated our currency.

    2. e says:

      But more to the point it hasn’t stopped Tory spending either. (Surprised?). What our central bank gives our government, which Greece doesn’t have, is sovereign control; therefore your earlier comparison is spurious.

      It’s my experience financiers are friends with any and all solvent entities. I recognise that in power Labour played their part – as friend to banker and media broker alike – they wouldn’t have stayed in power if they hadn’t – to ignore this fact of political life as it then was is disingenuous to say the least…

    3. Philip says:

      er…we do have our own Central Bank. It’s called the Bank of England & its responsibility (virtually its sole responsibility under Labour) was to control inflation. It’s never been the job of any central bank to control government spending.
      Why do you Tories keep churning out Byrne’s little joke? As the projected plans for unnecessary train lines show, there’s plenty of money if governments choose to spend it. There’s loads of cash going into free schools, academies, destroying the NHS – anywhere to feed the Tories pet projects, or to smooth the way for their contractor friends. Government spends money from taxes – which actually keep rolling in all the time – and from borrowing. Our debts appears to be still at £1tr, but the Government keeps on spending. It depends on who you are borrowing from, the terms & the rates. The problem we risk with present policies is that, like Greece, our economy will contract thus increasing social security payments & reducing tax revenue, so we have to cut spending further in a vicious downward spiral. In the 1930s, what got the US out of this was Roosevelt’s New Deal – more spending on essential infrastructure, particularly.

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