6 Jun 2011

The Chancellor utters the F-word

George Osborne was sounding a little more “flexible” than normal earlier, in an interesting interview on the BBC’s Today programme.

First thing: the Chancellor thinks the media is emphasising miserable economic news, and ignoring better news. The GDP figures have been disappointing, but look at the employment numbers, is the message from Number 11.

The Chancellor went as far as saying: “I have yet to hear a single bulletin saying ‘400,000’ new jobs created in the past year.”

Well, we will report that figure tonight, Mr Osborne.

On one level, the Chancellor is being rather modest. The increase in the level of UK employment is 415,000 over the past year.

But we will also report an excellent spot from Channel 4 News’s numerical gadfly of a producer Neil Macdonald. If you break down the past year into two halves, 84 per cent of that jobs growth happened before May (coincidentally before the Chancellor’s spending review, certainly in a time when it would stretch the imagination to suggest the Coalition should be taking credit).

In raw numbers, from March 2010 to March 2011, there was jobs growth of 415,000. Of that, 353,000 occurred between March and September 2010, just 62,000 between October 2010 and March 2011.

Here is a graph I prepared earlier:

When you marry that together with a similar exercise for the GDP numbers, you do get a picture of steady growth until August or September, and then a depressingly flat economy. Should that deflect Mr Osborne and the Coalition from the path it has set out? The economists behind the weekend’s open letter in The Observer think so.

I at least, detected a subtle change of tone from George Osborne this morning. To be clear this would represent no change in policy, certainly not a “Plan B”, but there seemed to be some give on his adamantine, unbending, infrangible Coalition deficit plan.

He mentioned the financial f-word – flexibility, four times this morning. In reality he was merely pointing out what I and others pointed out a year ago.

That Chancellor chose to adopt policies with “various echoes of Gordon Brown” (as I put it after the Emergency Budget) such as using a cyclically adjusted deficit target, that gives him some wiggle room. He also achieves that target a year earlier, another form of caution. The extra £44bn in actual borrowing announced at the Budget.

The form of flexibility that the Chancellor was talking an awful lot about just six months ago: the Bank of England printing more money, seems to be mentioned rather less by him now. He hasn’t chosen to emphasise that since it appeared clear that the Bank of England was preparing the ground for interest rate rises.

So it did not surprise me at all to hear the Chancellor stray into “grey” territory, suggesting that the world was “not binary” between his cuts and no cuts. The automatic stabilisers, lower tax revenues, extra benefits, will be allowed to work if this flat growth sustains.

The Treasury, of course, say there is no change in policy or rhetoric. But the context certainly has changed. The global economy has slowed a bit. High commodity prices have slowed growth. The rationale for the Treasury’s caution in June 2010 (and at the time, I thought it looked more like an embryonic 2015 election war chest to me) is being illuminated by events in the world economy.

Tying this all together, I’m not clear why the Treasury is so keen to talk up the economic news right now. Their approach, if it works, involves pain right now, for delayed sustainable growth in the future. That is the point of the austerity plan, isn’t it?

Follow Faisal Islam on Twitter: @faisalislam