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 House 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 strong 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.