The chancellor is pinning the government's re-electoral hopes on voters believing that Labour is responsible for the mess he has created
For some time now our chancellor of the exchequer has come across to the public as a kind of cheeky chappie. Last week we heard, through the medium of his father-in-law, my old acquaintance Lord Howell (energy secretary in Margaret Thatcher's first government) that George Osborne believes "the prime minister is not familiar with these [green] issues, does not understand them".
Then highly placed Conservative sources indicated that the chancellor was against the entire "green agenda" of a prime minister who once declared that he was leading "the greenest government ever".
Perhaps both prime minister and chancellor should reflect on another colloquial meaning of "green" – as in "inexperienced" or "not up to it" – which latter phrase was once used by Labour prime minister Clement Attlee on being asked why he was firing a member of his cabinet.
Nevertheless, as his economic strategy disintegrates in front of his, and our, eyes, one has to admire Osborne's insouciance. In hard times a sense of humour always helps, and in an article for the Times last week the chancellor demonstrated that he has certainly not lost his .
I am not referring to the main point, which was picked up by the rest of the media. The subject of gay marriage does not come into my definition of economic policy; nor, as far as I know, is it normally a subject of interest to Treasury officials.
What interested me were the chancellor's inferences of the significance of the US election result for politics in the UK. "First," he said, "the incumbent government was re-elected despite a historically weak economic recovery." So that's all right for the Conservatives in 2015, then.
Is it? We shall see. There is a difference between a historically weak US recovery of 2% a year and the experience of the UK, where there has been virtually no recovery to speak of and, according to the latest assessment by the Bank of England, there will be nothing like a return to pre-recession levels in the near future. Indeed, the talk is now of a triple-dip recession, although, in common with the National Institute of Economic and Social Research, I regard the economy as in depression until output returns to that previous peak, which has, one fears, gone outside and may be some time. It all depends on the semantics: recession returns, or depression persists. Either way, it is an Atlantic Ocean away from growth at 2% a year.
But the chancellor's humorous comparisons with the US do not stop there. Osborne believes that a key reason why Barack Obama won was that American voters still blamed the Republicans for the economic mess inherited by Obama, and, likewise, way ahead in 2015, British voters will still be blaming the last Labour government. With three years to go, and the brunt of the patently ill-conceived austerity programme still to come? I doubt it. Even now, slightly under half of voters blame the last government, and they have seen nothing yet.
Osborne views "our council tax freeze" as a vote-winner. This is the chancellor of a government that talks of localism but squeezes central government grants to local authorities to the limits. The impact on local services will not just be on the poor: Osborne's austerity programme will almost certainly hit the shires and the prosperous suburbs.
Now, the point about the austerity programme is not that it caused the crisis but that it aborted the recovery, and continues to inhibit it.
We experienced something close to a laboratory experiment in this country when, after the financial crash, the previous government lowered VAT and precipitated a recovery. That recovery was stopped in its tracks by the premature restoration of the earlier VAT rate, and the announcement of the austerity programme. At the time Osborne's sense of humour extended to such sick jokes as to compare our situation to that of Greece.
At the same time, we were told that the Bank of England, via monetary policy, would counteract the effect of the fiscal squeeze. Well, there is a limit to which interest rates can fall, and it does not help that banks have gone from one (pre-crisis) extreme to the other when it comes to the granting of credit. As Lord Skidelsky demonstrated in his recent GLS Shackle Biennial Memorial Lecture in Cambridge, the success of quantitative easing has been decidedly limited, probably more so here than in the US.
And last week Sir Mervyn King himself emphasised the limits of monetary policy. Of course, when the governor of the Bank said "there are limits to the ability of domestic policy to stimulate private demand", he did not add "especially when the stance of fiscal policy is calculated to restrict that demand".
I sympathise with King's concern about the effect on our international competitiveness of the 8% rise in the average value of the pound in the past year – a significant partial erosion of the earlier devaluation. But no doubt the credit ratings agencies will contribute to a reversal of this, since Moody's has indicated that the UK's triple-A rating will be threatened if the growth prospects worsen or the chancellor fails to stick to his deficit reduction timetable. The chances of both these things becoming reality are hardly slim.
 |
| READ THE ORIGINAL POST AT www.guardian.co.uk |
