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Sustainable Economy > Published by Will Straw, November 17th 2009 at 4:57 pm

The questions that George Osborne must answer

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George Osborne faces a number of questions about his economic recordIn this week’s New Statesman, Keynes biographer and crossbench peer, Lord Robert Skidelsky says:

“Someone like George Osborne gets away with leaving out assumptions behind his arguments because he’s not confronted with them. He’s interviewed a lot, but people haven’t really nailed him. There hasn’t been enough debate about the stimulus and national debt.”

To help this process, Left Foot Forward presents a series of questions that interviewers should ask George Osborne on his party’s economic policy:

1) Why did you oppose the nationalisation of Northern Rock and Bradford & Bingley?

In February 2008 during passage of the Banking (Special Provision) Bill, which gave the Government the powers to take Northern Rock into public ownership, George Osborne said, “I am not in favour of nationalisation, full stop” and voted against the second and third reading of the bill. He told the Today programme that the plan was “completely unacceptable.”

He reiterated this position when Bradford and Bingley was being nationalised when he told Sky News in September 2008:

“But in the end what nationalisation means, nationalisation of the mortgages means, is that we are bailing out the very large institutions who took a bet, who lent money to B&B when times were good and made money out of it, and now that times have turned hard and the bets have turned bad, we’re going to step in as taxpayers and bail them out, and I don’t think that’s the right thing to do.”

2) Why did you oppose the fiscal stimulus when every country in the G20 followed this approach?

The respected Brookings Institution carried out an audit of G20 stimulus plans. In March they reported that, “Almost all countries in the G-20 have announced fiscal stimulus measures.”

The following chart, reproduced using Brooking’s data, shows that the UK is mid-placed in relation to both the size of its stimulus and its national debt.

debt-stimulus-g20-countries

3) Why do you think the most respected economic commentators think your policy to urgently reduce the deficit through spending cuts will be ruinous? Do you know something they don’t?

In October, Martin Wolf wrote in the FT, “What should be done is closely related to when. These sorts of changes must not be rushed. Hasty cuts may lead to bad policies, such as the 60 per cent cut in net investment already decided; and they may also push a fragile economy back into a deep slump … the UK is right to plan for a structural fiscal tightening of at least 8 per cent of GDP. But it is unnecessary – and almost certainly a huge error – to implement such a tightening in short order.”

In September, Anatole Kaletsky wrote in The Times, “To tighten fiscal policy immediately beyond the measures already announced in the last Budget could be a big mistake on the part of the Tories, since the recovery that is now only just starting is unlikely to have developed a self-sustaining momentum by next May or June.”

Also in September, Will Hutton wrote in the Observer, “David Cameron and George Osborne … have decided that the national debt peaking at some 80% of GDP constitutes a national emergency. Never mind that since 1750 the national debt has always been proportionally higher than this, except for two 40-year periods – one at the end of the 19th century and the other from the 1970s until now.”

In July, Sam Brittan wrote in the FT, “But let me explain in my own words why I am more relaxed about debts and deficits than some other commentators. First, there is no regular and predictable business cycle, just an irregular movement of activity into which clever people can read patterns with hindsight … There is now more danger of economic stimuli across the world being reversed too soon than of their being continued too long.

4) Will you desist from describing Britain’s deficit as a ‘debt crisis’ in light of international comparisons showing that Britain’s debt burden is neither large nor unsustainable?

Left Foot Forward has previously shown that OECD figures used in Conservative party publications show that the UK’s debt burden is comparable with other G7 countries and well below that of either Italy or Japan.

Meanwhile, gilt yields are near record lows. Despite Osborne’s fears, the yield from 10-year British Government Securities (gilts) remain low by recent historic standards as this blog has shown. Last month, Martin Wolf wrote, “But with 10-year UK government bond rates at a mere 3.4 per cent, it is perfectly possible that much of the tightening can be delayed until the recovery begins.”

5) Do you still support the policies pursued by the Irish Government over the past two years?

In February 2006, George Osborne told an audience in Dublin that, “Ireland stands as a shining example of the art of the possible in economic policy-making. With its vision of a highly-educated, innovative, open, dynamic, low-tax economy, and relentless focus on the long-term drivers of prosperity, Ireland’s economic miracle has shown that it has the right answers to the challenges of the new global economy.”

As Left Foot Forward has highlighted, pursuing policies recommended by the Conservative party including cutting back public spending has created a depression. Ireland faces a catastrophic triple whammy of 12 per cent GDP decline, 12.4 per cent unemployment, and 5.9 per cent deflation.

6) Why do you continue to talk down the UK’s credit ratings?

In September, Osborne’s deputy Philip Hammond told Newsnight, “We need to send a clear signal to the markets. Two of the credit rating agencies have already warned us that the government’s AAA credit rating will be at risk if the next government does not show greater determination than this government has so far demonstrated.”

The same day, Bloomberg reported that the UK was “unlikely” to lose its top credit rating. And scotching suggestions that a looming Conservative victory was the only thing maintaining the AAA rating, last week Brian Coulton, head of European ratings at Fitch, said, “We are obviously aware that there will be an election next year but our capacity to forecast the election outcome would not be a sufficient basis to maintain a ‘AAA’ rating. We believe that fiscal policy objectives will be reorientated over the course of 2010 regardless of which government is in power.”

7) How do you square attacks on Brown over Sterling’s weakness with your stated desire for ‘export led growth’?

In November 2008, George Osborne broke convention and talked down the currency. He told the Times: “Sterling has devalued rapidly against the euro and the dollar. We are in danger, if the Government is not careful, of having a proper sterling collapse, a run on the pound.”

In September 2009, Osborne told a Spectator audience that, “Our aim must therefore be nothing less than a new British economic model … [including] a more competitive export sector … Both economic theory and international evidence tell us that the policy mix most likely to support a vigorous and sustainable recovery, led by private sector investment and exports, is low interest rates and tight fiscal policy.”

Writing on his FT blog last month, economist Willem Buiter said, “The global economic recovery, led by the emerging markets (other than those in Central and Eastern Europe) and the developing countries will provide a favourable environment for UK exporters, especially given the weakness of sterling.” Put another way, sterling depreciation is increasing the UK’s competitiveness and export volume.

8) Why does the Conservative party continue to mislead voters over poverty and inequality?

At Conservative party conference, David Cameron claimed that Labour made the “poorest poorer” but Channel 4 News FactCheck has given him 4/5 for inaccuracy. More recently Cameron claimed that severe poverty had “actually risen”. But the respected Institute for Fiscal Studies regards this definition of poverty as “unhelpful“.

Meanwhile, academics cited by Cameron, regard his approach to inequality – focusing on the gap between the bottom and middle but not the top – as half-baked.

  • http://twitter.com/guyaitchison/status/5800664119 GuyAitchison

    RT @wdjstraw: Following Skidelsky's @NewStatesman interview: The questions that George Osborne must answer http://bit.ly/23xPNO

  • http://www.order-order.com Guido Fawkes

    What do you think would have happened if Northern Rock had been put into administration?

  • http://twitter.com/edmundo/status/5801060043 Ed Conway

    Good critique of Tory attacks on govt RT: @wdjstraw: The questions that George Osborne must answer http://bit.ly/23xPNO

  • Joanna

    learn some economics – Osborne talks about the deficit, which is the largest in the G20 and in our history – ie it’s the rate of increase in the debt that’s the problem, not the absolute size. this is what the rating agencies and markets are worried about. also you’ve chosen 4 commentators who are all famously left wing keynesians – not exactly very convincing. I think you’d do better to focus on the questions Gordon Brown must answer: why is the UK the last majoe economy out of recession, why is our budget deficit the largest in the G20, why our are households the most indebted of any major economy ever, why have we had the largest bank bail out in the world ever (RBS).

  • Joanna

    oh and I just spotted this in the fitch quote you cite: “We believe that fiscal policy objectives will be reorientated over the course of 2010 regardless of which government is in power”. In other words the only reason the rating is safe for now is because they assume that whoever is in power will have to tighten fiscal policy over and above the massive cuts and tax rises already set out in the Budget. doesn’t really help your argument does it?!

  • willstraw

    Guido – (1) serious loss of confidence in the UK banking system causing wider economic disruption, (2) a bank run.

    Joanna – Thanks, but you’re wrong. Osborne and Cameron frequently conflate deficit with debt crisis (for example Cameron said ‘debt crisis’ 8 times in this speech ). That is irresponsible for the precise point that you make.

    Sam Brittan (brother of Leon) would be surprise to hear you call him a left-wing Keynesian. Of the four I quoted, only Hutton can be described as left wing.

    Your questions to Brown are good ones but they are often asked to him and his colleagues. George Osborne, as noted by Skidelsky, gets off rather more lightly.

    The Fitch quote says what it says. Both parties are committed to bringing down the deficit. The question is a matter of timing, a point on which Coulton was silent.

  • http://twitter.com/newstatesman/status/5803064460 New Statesman

    RT @wdjstraw Following Skidelsky's @NewStatesman interview: The questions that George Osborne must answer http://bit.ly/23xPNO

  • http://twitter.com/agurbash/status/5803795188 Dan

    RT: @edmundo Good critique of Tory attacks on govt RT: @wdjstraw: The questions that George Osborne must answer http://bit.ly/23xPNO

  • http://twitter.com/davidwearing/status/5805126041 David Wearing

    RT @wdjstraw Following Skidelsky's @NewStatesman interview: The questions that George Osborne must answer http://bit.ly/23xPNO

  • http://davecole.org/blog Dave Cole

    Joanna,

    why is the UK the last majoe economy out of recession

    Partially because this was a financial crisis and financial services are a relatively large part of the economy, causing a relatively slow recovery. Nor is the recovery elsewhere that impressive, and nor is it complete.

    why is our budget deficit the largest in the G20

    It isn’t. These figures from the IMF say that the UK has a deficit in terms of GDP of 11.6%, while the USA has a deficit of 13.5%.

    why our are households the most indebted of any major economy ever

    Total UK household debt at the end of September 2009 was £1.46tn (US$2.45tn atm) (source). Total US household debt is US$13.8tn (source). The population of the UK is about 61m; the population of the US is about 307m.

    why have we had the largest bank bail out in the world ever (RBS).

    Presumably because RBS happened to be badly run. Would you not have bailed it out?

  • http://twitter.com/psbook/status/5807535668 Political Scrapbook

    Left Foot Forward on the "questions that George Osborne must answer" –> http://bit.ly/23xPNO @leftfootfwd

  • http://twitter.com/pitmantrainingi/status/5810102066 Pitman Training Ire

    Irish No-Job News The questions that George Osborne must answer | Left Foot Forward http://bit.ly/VwYRa

  • http://twitter.com/davidwrightmp/status/5810673417 David Wright MP
  • http://twitter.com/property_insure/status/5822292005 Rene Truffaud

    The questions that George Osborne must answer | Left Foot Forward: “But in the end what nationalisation means, .. http://bit.ly/3TWuWG

  • http://twitter.com/ukremortgages/status/5822335024 Les Grant

    The questions that George Osborne must answer | Left Foot Forward: “But in the end what nationalisation means, .. http://bit.ly/3TWuWG

  • http://twitter.com/tommilleruk/status/5825329846 Tom Miller
  • http://www.byrnetofferings.co.uk Thomas Byrne

    I wouldn’t have personally have bailed the banks out, but then I listened to the people that actually predicted the recession accurately. It’s not unlike left wing hacks to hijack keynes for push for bigger government.

  • MJW

    Do you really respect Will Hutton’s economic insight that national debt was higher firstly during a period when the British economy was emerging through the industrial revolution and supporting an expanding empire (including fighting the Napoleonic wars, opium wars, Indian rebellion etc), and then secondly during a period when we had tw0 world wars bookending the great depression? Isn’t that a “no shit sherlock” observation? It would be helpful if these cretins actually deal with the real problem, which is the rate of public debt growth starting before the recession when we were in a boom, including the growth of a public sector which contains hideous levels of wastage, inefficiency, duplication and general unproductive activity.

  • http://www.order-order.com Guido Fawkes

    Didn’t we get serious loss of confidence in the UK banking system causing wider economic disruption and two or three bank runs?

  • David Jones

    Joanna,

    The repayments will be on our absolute debt, so it’s the eventual total which is the key figure, not the rate of rise at a given moment in time. As Dave Cole points out, we don’t even have the highest deficit, let alone debt.

    It’s also a bit of a stretch to call Martin Wolf left wing.

    MJW,

    No – the real problem is the collapse in tax revenue due to recession, not the levels of public spending, which were and are below average for comparable G7 and EU countries so it’s hard to see how our public sector could be that much less efficient than them.

  • http://davecole.org/blog Dave Cole

    Paul/Guido,

    Other than the Rock, which other banks had runs on them? I genuinely don’t know.

    There was systemic lack of confidence. To suggest that this was solely due to the policies of the UK government, given that the crisis was international, is a bit silly.

    The question – indeed, the only question – is whether you would have nationalised the Rock and prevented further bank runs or not.

    xD.

  • Balham Bugle

    Will,

    Strange that your list of “most respected economic commentators” did not include blogger, ex-MPC member (appointed by none other that Gordon Brown), FT columnist and LSE professor Willem Buiter, who said in his blog:

    “Certainly if, against all odds, Labour were to form the government after the next election, its fiscal credibility, and specifically its capacity to commit to future fiscal pain, would be nil. Although Alistair Darling has been a good chancellor, the years of Brownian fiscal irresponsibility have, I fear, undermined the credibility of any fiscal tightening program announced by Labour that was not significantly more front-loaded that it could have been and should have been had the government possessed a reputation for fiscal rectitude.

    The Tories are untried and untested. They did the right thing pointing out the inevitability of major fiscal pain; their apparent desire to start the fiscal tightening immediately and thus not to take full advantage of the announcement effects of future fiscal tightening may have been motivated by a recognition that they start out without a track record, without a reputation and therefore without any credibility capital to spend. A hung government might have some fiscal credibility if Vince Cable were the chancellor, but I am not holding my breath.”

    I also note your laughable accusation that politicians for picking that statistics to match their arguments not necessarily academic views. If I remember correctly Will, you spent some time working in the Treasury. During that time, I’m surprised that you never come across Gordon Brown asking for carefully crafted statistics to bolster his speeches?

  • http://thoughcowardsflinch.com/2009/12/08/of-cows-and-men/ Of Cows and Men « Though Cowards Flinch

    [...] massive asset bubble, the subsequent crash and the ensuing recession, hold pride of place in the Conservatives’ argument (see Q6) for the need to slash public services to get us out of the deficit caused by that very [...]

  • http://thoughcowardsflinch.com/2009/12/09/resistance-is-futile-say-tories/ Resistance is futile, say Tories « Though Cowards Flinch

    [...] it would appear that being ‘resistant’ is a sign of weakness in the Tory world more commonly known as ‘desperately trying to make things look worse than they are for [...]

  • http://leftoutside.wordpress.com/2009/12/11/incoherent-tories/ Incoherent Tories « Left Outside

    [...] of course I can never bring myself to agree with the Tories too much. Given the Tories allergic reaction to the mainstream economic opinion on the benefits of stimulus spending it seems foolish to suggest [...]

  • http://thoughcowardsflinch.com/2009/12/17/tory-story/ Tory Story « Though Cowards Flinch

    [...] with plenty of evidence to back it up.  The evidence is there; the Tories have consistently talked up the potential for a rating downgrade by the very credit rating agencies who were the cause of the financial crisis in the first place, [...]

  • http://www.leftfootforward.org/2010/02/whats-the-answer-george/ What’s the answer, George? | Left Foot Forward

    [...] November 17th, in the run up to the pre-Budget Report, Left Foot Forward set out eight questions that George Osborne must answer. Frustratingly we are no closer to knowing the answers. Indeed, in [...]