Published on 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

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10 reader comments

  1. Kes says:

    It might be worth mentioning one salient fact in your report this evening as it is rarely mentioned.

    It takes YEARS to alter an economy for better or worse. Brown needed 13 years to wreck the sound economy he inherited. It will take many years to repair the damage. This odd idea that Osborne, or anyone else, can turn things round in a few quarters is nonsense. Swings in employment will come and go for a while yet.

    You do your viewers a huge disservice by misrepresenting the potential speed of recovery after years of mismanagement.

    1. Gary says:

      What sound economy are you refering to?

      Over the last 30 years of mainly Tory led Govetnment we have had a domestic recession roughly every 6 years.

      The latest recession was on a GLOBAL scale and affected the major economies of the world.

      Gordon Brown inherited a massive debt from the previous govenment, which led, in turn, to the massive debt the current government are now stuck with. Ted Heath in the 70’s and the Thatcher Government of the 80’s borrowed us out of the recessions and taxed the working poor back to the stone age.

    2. Kes says:

      You actually support my point Gary. The last 30 years has been “mainly Tory”? The last 60 years have been mainly Labour and have seen a steady decline in our economic strength. Main factors were outdated manufacturing, nationalisation, union militancy and heavy debt spending by labour governments. we even had the IMF in to sort things out in the 70s. I suspect you wouldn’t remember that. When things got atrociously bad, the country voted the Tories back in to sort out the mess.

      Of course the last recession was GLOBAL. Many countries were making similar mistakes to Brown and Co and failing utterly to regulate banking. To check, look at Canada which had a sane banking system and came through quite well.

      Brown didn’t inherit a “massive debt” by our historical standards. Debt burden creation has always been a Labour vice as has taxing back to the stone age.

      To claim that all was well before Thatcher is moronic. Socialist tax and spend never works and harms the poorer disproportionately harshly.

    3. Gary says:

      Since the end of WW2 the government practically changed every 5 years until 1979. So it’s been a 50/50 split on Tory/Labour. So where in your time frame has it been predominantly a Labour led Government?

      Ted Heath, Tory PM, took us into the the ECM with disasterous results that pretty much set the ground work for the problems we are facing today. That was the reason for the IMF coming in.

      Margaret Thatcher, Tory PM, systematically sold the public services into foreign ownership. As a consequence of which we are now paying grossly over-inflated prices on domestic utlities.

      All of these actions have led to the economy being controlled by outside companies whose only interest is Money and Personal Wealth, not the well being of the general public or the product they are supplying.

      As with banking regulation, which countries impose one? As I understand it all banks are supposedly self regulating. They created the mess they should be made to pay for it.

      I didn’t say all was well before Thatcher either I pointed out that during her tenure we hasd more that one domestic recession. She also replaced the workforce that produced the products like quality steel with…

  2. Philip says:

    Thank you for the clarification, Faisal. We need the media to analyse what the politicians say & put it in context & explain when they are misleading us.

  3. Gary says:

    George Osbourne’s “Plan” for the ecomony is more like “Plan 9 from Outer Space”.

    If he thinks that taxing the public to the extent where they cannot afford even the basics, is going to lift the economy out of the recession then he’s obviously “Away with the fairies”!

    I have serious doubts about his “Pie in the Sky” policies and he has absolutely no understanding of what it is like to be in work earning a decent wage before being made redundant with “narry much a say about it”. He lives in an ivory tower and is silver-spoon fed.

    What he needs to do to stimulate the economy is cut VAT to 15-10%. This will get the public back on the streets buying goods. Then he needs to get a grip on excessive bonus payments, possibly slap a 50% levy on cumulitive bonuses over £100,000 per annum.

    Scrap the overseas aid budget for the next 4 years and use the money saved therefrom to plough back into public services in this country.

  4. Ray Turner says:

    I’m waiting for him to say that his strategy is “Prudent”…!

  5. Noel Bell says:

    Excellent report Faisal.

  6. Andrew Dundas says:

    Fortunately the Bank’s Monetary Policy Committee sticks to the hard facts. Like C4, they spotted that our economy was pushed into a stagnation phase last year and held their nerve.
    Moreover, the MPC can see that only their twin policy of lowering the value of Sterling (which has boosted exports a bit) and propping up money supply by buying back debt (which discourages saving) is keeping our economy from actually shrinking. If shrinkage happened, financial markets would wobble a bit.
    The IMF’s job is to warn other countries if a country is likely to default, and to manage re-structuring if needed. So far the IMF doesn’t believe the UK needs that. So what’s new then?

  7. Ray Turner says:

    I certainly uttered the F-word when I saw yet another 20% increase in gas prices. It seems to be an annual event.

    Things are getting ridiculous. Its all very well putting up energy prices by 20%, but this years increase in the minimum wage doesn’t even get close to covering it…

    I’ve been seriously thinking about whether I could manage without gas, getting the energy company to remove my meter, cap the pipe and close my account.

    Its a serious lifestyle change. I’d have to rely on electricity only, maybe bottled gas too, but I think the laws of supply and demand have got to start having an impact on the energy companies and speculators before things will stabilise again…

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