17 May 2011

The changing narrative of Chancellor George Osborne

The Chancellor was kind enough to spend 20 minutes talking with me on the Eurostar back from the Brussels European finance meetings. I detect a politician settling into his job, keen to mark out a medium term vision for Britain that goes beyond deficit reduction.

“We’re trying to make sure the British economy is not a one-trick pony, where all our bets are placed on the success of the City of London, important as that is,” he told me. Mr Osborne spoke at length about what Britain might learn from the booming German economy. He praised Spain for taking tough austerity action that has allowed it to “decouple” from Portugal and Greece. I pointed to the flat growth seen over the last six months, he almost conceded that, but pointed to EC forecasts predicting Britain’s growth is to exceed that even of Germany.

“We are getting on top of the problems we inherited and restructuring the British economy so that exports and manufacturing…we are getting on top of our deficit, which is absolutely fundamental to our economic stability”. He added: “Not only has Britain moved off negative outlook for its credit rating: one of the very few countries in the world that’s moving up the credit rating scale rather than down the credit rating scale at the moment.

But our interest rates are close to Germany’s, even though our budget deficit is higher than Portugal’s – and that is a measure of the economic success we’ve had,” he said. I pushed him on how on earth it could be that the Government claimed that Labour had left Britain on the brink of bankruptcy (the coalition argument last year) yet now the argument is that Labour would have made seven out of eight of the cuts now announced by the Government. How can both be true? “What we inherited from Labour was a completely incredible commitment to reduce the budget deficit,” the Chancellor told me.

This is a subtly different argument to suggesting that they had no plans. It still strikes me that the Government is now adopting an argument, a “narrative” if you like, which is almost the polar opposite to the one used a year ago. Mr Osborne’s explanation is that Labour did have some plans, but they weren’t credible. Hardly the difference between bankruptcy and AAA. On inflation, the Merv and Ozzie show continues.

He buys into the Bank of England line. He said Mervyn King’s letter was “convincing” in its assessment that inflation was set to fall in the medium term. “If you look at the data…there are some factors now which are pushing inflation down. For example, the pressure on clothing prices, which are coming down. I think the Governor and the MPC are doing the right thing,” he said. The Governor put the Chancellor’s VAT rise first in the reasons for above target inflation. Is that not Mr Osborne’s fault? “I would say, of course, that the VAT rise is an essential part of dealing with the budget deficit…The Bank Governor has been a very vocal supporter of the efforts that the Government in Britain has taken to try and bring the budget deficit under control.

In terms of its impact on inflation, the Bank Governor is very clear that the VAT rise has a temporary and diminishing impact on inflation”. OK that’s enough of Mr Osborne for one blog post. I’ll go through what he said re the euro: that finance ministers are “on top of the crisis”, the IMF and Gordon Brown “no contact either directly or indirectly” on IMF job tomorrow.

15 reader comments

  1. Ray Turner says:

    What I don’t understand, is how exports and manufacturing are doing comparatively well at the moment. It is just chance isn’t it..?

    I’m not being funny here (for once).

    I genuinely don’t understand what George Osborne has done to improve those two aspects of our economy…

    1. Andrew Dundas says:

      Exports are doing better because of the Bank of England’s policy of holding interest rates down, and all along the yield curve, has devalued the Pound below a balanced trade level. From 1996 to 2008, the pound was over-valued.
      Perhaps we ought to be asking why the UK trade balance recovery is so weak with such a large price advantage?

  2. Philip says:

    Do I detect a changing story because the Ed Balls line of “too much too fast” has been gaining resonance?

  3. Saltaire Sam says:

    I cringe every time I hear people like the multi-millionaire Osborne say ‘I understand that families are having a really tough time…’

    It is simply patronising. He has no idea.

    He has never struggled to make ends meet in his life and will not feel the pain no matter what he does as chancellor. Indeed, short of becoming an avid backer of slow horses, he never will have to worry where the next bottle of fine wine is coming from.

    While many people are concerned how they are going to pay rising food prices and for ‘luxury’ items like gas and electricity, George is still able to pop off to Klosters for a few days.

    I remember the shock and horror suffered by MPs on the C4 documentary where they lived on bog standard estates. And they weren’t people who had inherited a fortune.

    Go and live on a basic pension in a council flat for a month, George. Perhaps then you will really understand.

    1. Tom Wright says:

      I don’t cringe: doctors don’t feel my pain, that doesn’t mean they can’t cure it. Having a problem with Osborne because he is wealthy is either inverse snobbery or envy – which is it?

      If we follow your line of thinking, then only the poor should govern. Effectively you are saying that there is some kind of moral superiority achieved through being poor. I fail to see it.

    2. Saltaire Sam says:

      Maybe both, Tom! I just find it very condescending for someone in his position to make out he knows what it is like to make ends meet when clearly he doesn’t.

      I think it would do all politicans good to live for a while in a council estate on the equivalent of a benefit or pension so they would have a visceral appreciation of the effect their decisions have instead of an intellectual or even empathetic one.

      I’m sure midwives who have had babies are more in tune with those about to deliver mums than those who haven’t.

      We can all empathise with someone who has lost a child but I think another person who has suffered the same loss probably understands more.

      Similarly I probably underestimate how tough it is being George, having never had to cope with all those millions, holidays in klosters, luxury homes and all the perks that go with being a cabinet minister, plus of course the pressure and having to be interviewed by Faisal :-)

    3. sue_m says:

      Tom, I think comparing doctors – who generally go into medicine to be on the front line of caring and saving lives – with a career politician from a background which negates the need to actually work for a living is daft.
      I agree that you cannot exclude people from politics simply because they are wealthy but there has to be a balance. Some people are wealthy because they worked hard for it. Anyone going into politics should have worked for a reasonable period (5 years plus) in the real world (ie not a directorship in the family firm). That would at least exclude those who aren’t prepared to get their hands dirty and would bring politicians into contact with people who live life further down the food chain. The experience would make them far more valuable and better qualified to make decisions on our behalf than a cabinet full of inherited wealth, which simply cannot comprehend the stresses of everyday life on a budget. Some of them only seem to be there because they fancied a dabble at running the country after Eton made them believe it was their birthright.

    4. Tom Wright says:

      Sue, on the usefulness of life experience for political office there isn’t a case to answer: I agree entirely. Indeed I’d say you are loudly objecting to an issue I did not raise, a position I did not take.

      And I stand by my Doctor’s analogy and disagree with your statement on their high-minded motivation – medical doctors are professionals not angels, and are well paid by us the tax payer for what they do. That they have satisfying and challenging work is a privilege and not the upshot of innate moral superiority.

      You might as well argue that I can’t appreciate nature without a degree in biology, or a washing machine without a degree in engineering. What next, you can’t appreciate ethics if you aren’t a priest?

      And, your position is ridiculous: George Osborne has run a business, and does have life experience outside office. Unlike for example, Ed Milliband, Harriet Harman, Ed Balls or countless other Labour figures.

    5. sue_m says:

      In any profession there will be those in it for the money or prestige and I don’t believe doctors have the moral high ground on all matters. But, it seems perfectly reasonable to believe that those in the medical profession, who dedicate many years training to be well qualified for that job (and deserve the resulting pay), will generally be people who have more concern or empathy with other humans than career politicians who need no formal qualifications other than sucking up through the party ranks.
      It is possible for amateurs to appreciate many things – nature, washing machines(!) included – without fully understanding how they work or the impact on them if you start toying with them. As we often find out only when it is too late.

  4. Old City Hand says:

    Britain was not on the verge of bankruptcy a year ago. Either Osborne is (as Professor Blanchflower has described him) economically illiterate if he really believes that, or else it was a knowing, malicious, ludicrous exaggeration to justify his deflationary attack on the economy. Suggesting that the UK was going to be put in the same basket as Greece or Portugal insults the intelligence of anyone with a GCSE in Economics. Brown did nothing to endear himself to political opponents as Chancellor, but it would be nice if Osborne could rise above petty politics and admit that the Darling-Brown judgements in the bank crisis, with targeted recapitalzations instead of state guaranties of all liabilities, is what saved the UK from being lumped together with Ireland. And with massive oversubscription of inflation-linked bonds reminding us that the UK has never had any problem funding its deficit internally, the confirmation that the UK is saddled with a chancellor who fluently twists, distorts and exaggerates anything to satisfy his political instincts. Which is exactly how Mervyn King read him (thanks, Wikileaks). At some point a narrative based on neo-con invention is likely to unwind.

    1. Tom Wright says:

      Everything you say above is right. Nevertheless, you are wrong to suggest that it isn’t George that turned it around. This isn’t an issue of policy, its an issue of perception.

      The problem with the labour’s fiscal policy was not its substance, but its credibility. Simply put, the plan was sound, and as you suggest above good decisions were taken during the crisis. Labour did well. And, as has been widely reported – on these pages no less – the proverbial cigarette paper could not be placed between Labour and Tory policy on deficit reduction.

      However, a continuing Labour government would have been a disaster for our credit rating. Cuts were necessary, but Labour re not believed on cuts by the electorate or the markets. When Labour says ‘cuts’ we are cynical, when Tories say ‘cuts’ we believe it, and some – we know they mean business.

      Perception has as big if not bigger impact on interest rates than policy truth. Hence, our good credit rating is actually down to Osborne, not Labour even though there is no substantive policy difference. It wasn’t what was said, it was who said it: Osborne’s political instincts were entirely correct.

  5. Andrew Dundas says:

    Entirely agree with ‘Old City Hand’: there never was any slippage in the UK’s AAA rating; and I add that our relative Bond rates (adjusted for inflation risks) are much the same as 15 months ago.
    Unlike small economies, the UK has no history of sovereign default and, unlike Greece & Portugal, sells most of its Bonds internally. Lord Snooty’s alarms about imminent financial collapse were balmy.
    There is a dichotomy between Merve-the-swerve’s economic policy that is to hold short-rates AND our exchange rate down to off-set the ruinous deflation of Osborne. If Merve’s inflationary policy also erodes the value of British debts, then that helps too.
    The REAL Osborne policy is to support Lord Snooty’s attacks on public services to finance Tory cuts in Corporation Taxes. And to increase taxes on the struggling classes through higher VAT and Excise duties.
    Will Merve’s growth policy prevail – or will Lord Snooty, Osborne & Clegg stop him?

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