George Osborne would have been sacked long ago by a strong prime minister
First the good news: this government is disintegrating. Second, the bad news: the disintegration will take some time, and meanwhile even more economic and social damage is likely to be wreaked on a public that by now ought not to be quite as unsuspecting as it was.
The Olympics have, of course, been a wonderful diversion from the harsh reality that will soon return. Those of us who never got our act together to abandon the metropolis for the duration of the Games are thanking our lucky stars.
The Liberal Democrats are thanking neither the stars nor their coalition "partners". They have plainly been taken for a ride. In their desperation to achieve their reform of the House of Lords they entered into a Faustian pact with the Conservatives. In the process, they allowed themselves to be frightened by the Treasury and the Bank of England into believing that the British economy's financing problems were on a par with those of Greece.
Right from the beginning a handful of commentators, including your own correspondent, tried to warn them that this was far from the case; that the British debt position was one of the strongest in the western world; and that a deficit reduction programme was a worthy goal when an economy was growing fast, but likely to delay such a recovery if embarked on prematurely.
Indeed, when the economy is depressed, and business and the general public (we so-called consumers) are cutting back, the only way to prevent the situation from becoming worse is for the public sector to fill the gap, not to make it even bigger.
"Healey's Law" has been quoted before in this column and is worth repeating. It goes as follows: "When you are in a hole, don't dig any deeper." As for all that public sector borrowing, it is being done at negligible interest rates – much lower than the rate at which the private sector can borrow for all those "private" infrastructure initiatives the government is doctrinally trying to encourage. As Robert Stheeman, head of the UK Debt Management Office, observes: "It's extraordinary. If you had told me just a few years ago how low they [the UK's borrowing costs] could go, I wouldn't have believed you."
Stheeman has always been confident of the strength of the UK's position, often pointing to the very long average maturity of the debt (some 14 years).
However, chancellor Osborne did not do us any favours by stressing, foolishly and far too often, that the UK's credit rating (given by the very agencies who failed to spot the imminence of the global financial crisis) was the be-all-and-end-all of the tests of the coalition's deficit reduction strategy. Now the Lib Dem chief secretary to the Treasury, Danny Alexander, can be heard proclaiming that it is not the be-all-and-end-all. Why? Because it is not working.
Whitehall insiders recognise when a government is beginning to fall apart: Ministers become more obsessed than usual with "tomorrow's headlines". And the more obsessed they become, the worse are the headlines. Even those of us with long memories wrack our brains to think of any budget that has fallen apart so quickly as George Osborne's abysmal effort this year.
Things have reached a pretty pass when even the International Monetary Fund urges the chancellor to think of easing up on the deficit reduction strategy and consider introducing temporary tax cuts. As it is, the premature rise in VAT to 20% is likely to go down as one of the great fiscal misjudgments in recent British economic history.
Things have become so desperate that the refunds being made by the banks of mis-sold payment protection insurance are now being talked up as a reflationary measure. This, assuredly, as Dr Johnson said of patriotism, is "the last refuge of a scoundrel" – although I hesitate, for legal reasons, to call George Osborne a scoundrel.
Talking of Osborne, one notes that there is much speculation about a cabinet reshuffle, although there is also much guidance that this will not involve the most obvious candidate for such a shuffle, namely the chancellor.
Cameron's more illustrious predecessors, such as Harold Macmillan, would have had no hesitation in giving a discredited chancellor his marching orders. But to sack Osborne would of course be to admit the failure of the strategy, and invite retribution from the rating agencies. A Macmillan, of course, would have been big enough to call their bluff.
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