Monday, 6 June 2011

First hints at a Treasury rethink

Has George Osborne just blinked?

Yesterday's letter from a number of leading economists and business commmentators urged the Chancellor (above) to reconsider his rapid cuts and to prepare for a soft, rather than a crash, landing. This morning he went on the Today programme and pointed out that he always said that 'automatic stabilisers' on spending would be allowed to work, and that he had given himself four or five years to obliterate the structural deficit. So (a) if the economy grows slower than it might otherwise have done, he's happier to get to balance more slowly, and (b) if there are unexpected crises or difficulties, he's also happy to get rid of the deficit that'd happen anyway in 'normal' times a bit later than declared.

This doesn't, of course, really address the major problem - that even given those two qualifications, no OECD country has ever managed or is even trying to reduce spending and raise taxes in this mix, this fast. And that hidden away in the Treasury's published calculations is the presumption that personal spending - and debt - will rise massively during this Parliament to plug the hole left by government spending. End of the age of debt? Don't you believe it.

So I doubt whether the Government will hit its targets anyway. Not that any such outcome would do them irreversible harm. There's a trap here for Labour, because they can shout about that as much as they want, but if the Chancellor wants to ease up and offer tax cuts in the spring of 2015, he can - even if there's a chunk of borrowing still hanging around. Will the markets then take fright? Unlikely - as the Chancellor in fact understands very well. And Mr Osborne will (he hopes) be able to point to a growing economy. All the detail, and all of the blame about whether we could have got there quicker, will be seen as yesterday's news. But that just points up the futility of Opposition - something Labour is going to have many, many years to get used to.

In the meantime, Mr Osborne has shown what a master of nuance and tactics he is. He's waved a pinkish flag at the critics while making sure it's got a great big blue reverse side that only his troops can see.

He hasn't blinked. He's suggested that he just might. But it's a slight change in stance that might have consequences.

There's no Plan B yet. But there might just be the beginnings of a Plan A (ii).

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