28 Jan 2011

No Plan B – but a slower Plan A

The Coalition may not be for turning on the Austerity Plan, but my gut feeling from Davos is that it will make some changes if the downturn continues.

It was what one leading UK corporate leader called “under the radar changes to support the public”, without announcing to the markets any change of plan. It is what former Osborne adviser, and acknowledged world austerity expert Ken Rogoff refers to me as “a slower Plan A”.

Some of that involves letting automatic stabilisers work during any downturn, but it is clear that other measures, on fuel for example are being actively prepared.

I interviewed the Chancellor of the Exchequer today in a busy Davos corridor. The difference in tone and demeanour from my last interview with him in August was really rather striking. Then he was at the height of influence and power as the man behind the historic Spending Review. Today he seemed a little humbled by a GDP figure that insiders concede was “not in the script”.

He conceded that the poor figure was not solely down to the weather. “The fall in GDP was caused by very bad weather in December, but I completely accept that even without the snow we’d like the GDP numbers to be stronger,” he told me.

I put it to him that a further quarter of economic decline would require changing the plan, as suggested by his appointee Martin Wolf, and former adviser Ken Rogoff. The Chancellor said he was not in the business of speculation.

“We would go back into the financial danger zone if I went to the HouseĀ  of Commons on Monday and said I was abandoning our deficit reduction plan,” he said.

And he’s probably not wrong there. And it is fair to say that there is international backing for his measures. Rogoff’s suggestions of calm were against a backdrop of total agreement that the original plan was necessary for the UK to avoid the fate of troubled European nations.

Even businessmen concerned about the very sharp drop in consumer confidence (Sharpest monthly drop since 1994) such as Martin Sorrell and Lord Levene were cautiously supportive of the government.

Osborne is also a bit of an Austerity Pin-up for many Americans here who feel that the US government is not getting to grip with its ballooning deficit.

Unfortunately though, the storming US Q4 growth figure today contrasted sharply with Austerity Britain’s. I pointed out the strongĀ  Q4 figures in the US, and expected in Germany, and he gave a very intriguing reply about his vision for the British economy. More on that tomorrow.

6 reader comments

  1. TGRWorzel says:

    Thing is Faisal, as soon as the Government admits there’s a plan B, there’ll be intense media, political and public pressure to switch to it. The politicians have simply no alternative but to stick to their guns, now that they’ve embarked on a policy of deficit reduction.

    And as policies go, its a sensible one. We simply couldn’t go on racking up the deficit in the way that we were.

    Get this painful period out of the way and things will be rosier in a few years time.

    I just hope we’re not lumbered with another irresponsible Labour Government, who’ll just undo all the good work that is being done.

    How many times have Labour bankrupted Britain during my lifetime…?

    At least twice I reckon…

  2. Philip Edwards says:


    In March there will be a March for Jobs in London. It has been organised by citizens sick to death of their families’ lives being stolen by a rotten-to-the-core corrupt system each generation.

    It will have none of the back-slapping, suited-up hypocrisy and lies of the Davos meeting. It will be just decent people telling the establishment (for the umpteenth time) enough is enough, that we don’t want them or their disgusting banking scam.

    Doubtless mainstream media, almost all of it extreme right wing, will disparage it. There will be agents provocateurs. There will be lies and misreporting. There will be Murdoch media at its jeering worst.

    But the establishment will be terrified it is the start of a reaction they can’t control without water cannon, tear gas and police brutality. They will be scared their thieving game is up.

    Will you join us, or will you be “objective”?

  3. Andrew Dundas says:

    Mervyn King is often misquoted. His prescription is for a ‘credible plan’ whatever it maybe. He doesn’t prescribe any particular type of plan or timetable. In fact, it doesn’t matter whether it takes four, five or six years to achieve a balance in income and spending. Nor whether the plan relies on a combination of growth and spending controls. What any plan needs to be is understandable and achievable.
    If persistent unemployment and stagnation comes to our country, markets will take over policy making just as they did in 1993. That was when the City intervened to devalue the pound to get the UK economy and jobs onto recovery paths.
    Cameron has nailed his colours to the mast and so has Clegg and Osborne. If they change now, their deficit policy will lose all credibility, just as the Major-Lamont policy lost credibility in 1993. Which is the real reason why they don’t want a Plan B: going there would be an early admission that they’ve got it very wrong.

    This issue is NOT about what works best – but what can save the coalition’s credibility!

  4. Ed says:

    Faisal certainly is the best economic reporter on the TV at the
    moment and I thought he didn’t ‘pull any punches’ when it came to interviewing Osborne.

    Cameron, Clegg and Osborne have food stamps for life in the form of trust-funds never mind picking on the young and poor. They can cut the deficit by taxing the rich & tax dodgers!

  5. Thud says:

    Mmm, correct me if I’m wrong but the difference between Labour and the ConDems handling of the economy was that Labour wanted a slower paced austerity and cuts, surely George can’t be in doubt already, oh, I forgot it was the Lib Dems view before the election as well prior to them prostituting themselves for power!

    1. Charles Jurcich says:

      Correct, I think Labour’s plan was almost as reckless, and certainly enough to cause stagnation and high unemployment – they’re all rubbish sadly. All the economic theories/plans on offer had the same poor theoretical assumptions at their core –

      1) Ricardian Equivalence,
      2) Fiscal policy has no “long-run” effect
      3) The belief that govt debt “crowds out” private finance.
      4) Old theories related to convertible currencies applied incorrectly to our current ‘floating sovereign fiat currency’

      Oh…I could go on, and on….

      Labour are just ‘neo-liberal lite’.

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