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George Osborne's Plan C: invest all your hopes in a Canadian George Osborne's Plan C: invest all your hopes in a Canadian
(6 months later)
I'm surprised that it has attracted so little attention. It is not every day that a cabinet minister quits. It is usually treated as very momentous indeed when a chancellor throws in the towel. I am pretty sure it is unprecedented for a chancellor to announce that he is giving up his responsibilities in his budget speech. It is certainly unique for a chancellor to hand them over to a citizen of another country. Yet the resignation of George Osborne has been barely covered by my colleagues in the media.I'm surprised that it has attracted so little attention. It is not every day that a cabinet minister quits. It is usually treated as very momentous indeed when a chancellor throws in the towel. I am pretty sure it is unprecedented for a chancellor to announce that he is giving up his responsibilities in his budget speech. It is certainly unique for a chancellor to hand them over to a citizen of another country. Yet the resignation of George Osborne has been barely covered by my colleagues in the media.
I suppose this is because, in a strictly technical sense, he remains in post. He has hung on to the job title, he carries on drawing his cabinet salary, he continues to turn up at the Treasury as if he is still the man in command of our economic destiny, and his officials and colleagues, and journalists, go along with the pretence that he remains in charge. But if the most important part of a chancellor's job description is to take responsibility for the future of the economy, he has effectively given up on it.I suppose this is because, in a strictly technical sense, he remains in post. He has hung on to the job title, he carries on drawing his cabinet salary, he continues to turn up at the Treasury as if he is still the man in command of our economic destiny, and his officials and colleagues, and journalists, go along with the pretence that he remains in charge. But if the most important part of a chancellor's job description is to take responsibility for the future of the economy, he has effectively given up on it.
In advance of the budget, one Number 10 official prepared us for a non-event by saying: "The day when Mark Carney sits down will be far more important than the day when George Osborne stands up." When I first heard this remark, it sounded very insulting to the next-door neighbour, this suggestion that the arrival of the Canadian Mr Carney as governor of the Bank of England in the summer was far more crucial than anything the chancellor would announce in what is supposed to be the major event of his year. Yet Mr Osborne's own officials have subsequently voiced a similar view. And now the chancellor himself has told us that he agrees. In a budget which was otherwise insignificant in terms of the big economic picture, much the most potentially important passages were those in which he prepared for the Canadian's arrival at Threadneedle Street by giving him a new and much more powerful mandate for the Bank. It amounted to saying: "I've no more ideas. See if you can do any better, Mr Carney."In advance of the budget, one Number 10 official prepared us for a non-event by saying: "The day when Mark Carney sits down will be far more important than the day when George Osborne stands up." When I first heard this remark, it sounded very insulting to the next-door neighbour, this suggestion that the arrival of the Canadian Mr Carney as governor of the Bank of England in the summer was far more crucial than anything the chancellor would announce in what is supposed to be the major event of his year. Yet Mr Osborne's own officials have subsequently voiced a similar view. And now the chancellor himself has told us that he agrees. In a budget which was otherwise insignificant in terms of the big economic picture, much the most potentially important passages were those in which he prepared for the Canadian's arrival at Threadneedle Street by giving him a new and much more powerful mandate for the Bank. It amounted to saying: "I've no more ideas. See if you can do any better, Mr Carney."
We will come on to whether the Canadian is really the miracle cure for all the misery. But first, let's finish with Mr Osborne. I guess the reason that he did not actually resign is that he retains a relish for the "political" element of being chancellor, the aspect of the role that involves plotting to wrong-foot Ed Balls, calculating what might please the crowd on the Tory benches and tossing sweeteners in the direction of voters whom he thinks might be biddable. In the "political" category were those of his announcements that raised a cheer from his MPs and were aimed at swing voters, but will make little or no difference to our immediate growth prospects. These included the commitment to increase the level of income tax-free earnings to £10,000 a year earlier than originally promised, the freeze in the scheduled rise in fuel duty and the penny off the tax on beer.We will come on to whether the Canadian is really the miracle cure for all the misery. But first, let's finish with Mr Osborne. I guess the reason that he did not actually resign is that he retains a relish for the "political" element of being chancellor, the aspect of the role that involves plotting to wrong-foot Ed Balls, calculating what might please the crowd on the Tory benches and tossing sweeteners in the direction of voters whom he thinks might be biddable. In the "political" category were those of his announcements that raised a cheer from his MPs and were aimed at swing voters, but will make little or no difference to our immediate growth prospects. These included the commitment to increase the level of income tax-free earnings to £10,000 a year earlier than originally promised, the freeze in the scheduled rise in fuel duty and the penny off the tax on beer.
I can see how reductions in tax on companies might help to nurture an "aspiration nation", but I am less clear how that goal will be realised by making it very slightly cheaper to get pissed. Even Mr Osborne himself looked like he was stifling a giggle when he announced such an egregious bid for a pat on the head from the tabloids. But we can all grasp the desired effect. These gestures were intended to try to repair some of the damage done by last year's disastrous budget when the combination of a new tax slapped on pasties and a cut in the rate paid by millionaires made the Tories look like a party not for the squeezed middle but the plump posh.I can see how reductions in tax on companies might help to nurture an "aspiration nation", but I am less clear how that goal will be realised by making it very slightly cheaper to get pissed. Even Mr Osborne himself looked like he was stifling a giggle when he announced such an egregious bid for a pat on the head from the tabloids. But we can all grasp the desired effect. These gestures were intended to try to repair some of the damage done by last year's disastrous budget when the combination of a new tax slapped on pasties and a cut in the rate paid by millionaires made the Tories look like a party not for the squeezed middle but the plump posh.
Into this category also falls the Help to Buy scheme, designed to give an artificial stimulant to the housing market. Interest-free loans of up to £120,000 will be available to help people trying to raise a deposit to buy a new home. There will also be a massive government guarantee to cover banks against losses on high loan-to-value mortgages. Labour has scored a hit by asking a question which did not seem to occur to the Treasury before the scheme was announced: will this facility be exploitable by wealthy people buying a second, third or more homes?Into this category also falls the Help to Buy scheme, designed to give an artificial stimulant to the housing market. Interest-free loans of up to £120,000 will be available to help people trying to raise a deposit to buy a new home. There will also be a massive government guarantee to cover banks against losses on high loan-to-value mortgages. Labour has scored a hit by asking a question which did not seem to occur to the Treasury before the scheme was announced: will this facility be exploitable by wealthy people buying a second, third or more homes?
The more fundamental question is whether it is a good idea at all for the state to be subsidising the purchase of private houses and insuring the banks against risk if they lend foolishly. It is certainly a very peculiar notion to come out of a supposedly free market, personal responsibility, small state, fiscally cautious Conservative party. There's some risk that it will inflate another housing bubble. It is only fundable because of an accountancy trick. The chancellor could afford this lavish injection of public money into the housing market because the actual lending is done by someone else. It therefore counts as "off-balance sheet" and doesn't show up as more borrowing. But next time the housing market goes pop, it will be very much on the balance sheet if the British taxpayer has to pick up the bill for banks who have made stupid loans to people who couldn't afford them.The more fundamental question is whether it is a good idea at all for the state to be subsidising the purchase of private houses and insuring the banks against risk if they lend foolishly. It is certainly a very peculiar notion to come out of a supposedly free market, personal responsibility, small state, fiscally cautious Conservative party. There's some risk that it will inflate another housing bubble. It is only fundable because of an accountancy trick. The chancellor could afford this lavish injection of public money into the housing market because the actual lending is done by someone else. It therefore counts as "off-balance sheet" and doesn't show up as more borrowing. But next time the housing market goes pop, it will be very much on the balance sheet if the British taxpayer has to pick up the bill for banks who have made stupid loans to people who couldn't afford them.
All rather desperate, but then the chancellor's own team privately admitted in advance that he would have cancelled this budget had he been given the choice. His purse is empty. His political stock low. His excuses – it is all the fault of the last lot and foreigners – are a wasting alibi. The numbers are almost universally grim. Youth unemployment is nudging 1 million. The growth forecast for this year has been slashed to 0.6%, half what was predicted three months ago. The day when the deficit will be eliminated retreats further over the horizon every time the chancellor opens his mouth. The national debt is now projected to stand at £1.4 trillion in 2015, going on for double the £800 billion bequeathed by Labour in 2010.All rather desperate, but then the chancellor's own team privately admitted in advance that he would have cancelled this budget had he been given the choice. His purse is empty. His political stock low. His excuses – it is all the fault of the last lot and foreigners – are a wasting alibi. The numbers are almost universally grim. Youth unemployment is nudging 1 million. The growth forecast for this year has been slashed to 0.6%, half what was predicted three months ago. The day when the deficit will be eliminated retreats further over the horizon every time the chancellor opens his mouth. The national debt is now projected to stand at £1.4 trillion in 2015, going on for double the £800 billion bequeathed by Labour in 2010.
The chancellor was never going to take the Keynesian counsel of his shadow to jump-start the economy by easing austerity and allowing more borrowing. Nor was he going to heed the advice from some in his own party to try to defibrillate the economy through big, unfunded tax cuts. It was nevertheless remarkable how few ideas he had for doing anything to get things moving. He came up with a paltry £3bn extra in infrastructure spending, to come out of further cuts to departmental budgets and which won't kick in until 2015. The bleak verdict of the Office for Budget Responsibility was that nothing he said would have any significant effect on the future trajectory of the economy.The chancellor was never going to take the Keynesian counsel of his shadow to jump-start the economy by easing austerity and allowing more borrowing. Nor was he going to heed the advice from some in his own party to try to defibrillate the economy through big, unfunded tax cuts. It was nevertheless remarkable how few ideas he had for doing anything to get things moving. He came up with a paltry £3bn extra in infrastructure spending, to come out of further cuts to departmental budgets and which won't kick in until 2015. The bleak verdict of the Office for Budget Responsibility was that nothing he said would have any significant effect on the future trajectory of the economy.
So now the chancellor is investing his hopes – and asking us to do the same – in the arrival of the cavalry in the person of Mark Carney. Mr Osborne regards the recruitment of the Canadian, who rebuffed his initial approaches and only agreed to take on the job after persistent wooing and a lavish remuneration offer, as a great coup.So now the chancellor is investing his hopes – and asking us to do the same – in the arrival of the cavalry in the person of Mark Carney. Mr Osborne regards the recruitment of the Canadian, who rebuffed his initial approaches and only agreed to take on the job after persistent wooing and a lavish remuneration offer, as a great coup.
With its new regulatory remit, the Bank of England is already set to become the most powerful central bank in the world. Now it is being tasked with stimulating growth as well. This was dressed up in technical jargon such as "unconventional monetary instruments to support the economy". What it boils down is that the Bank will be empowered to put more emphasis on growth and less on control of inflation. While the inflation target is unchanged at 2%, it's now officially flexible. (It's been unofficially quite elastic for some time now.)With its new regulatory remit, the Bank of England is already set to become the most powerful central bank in the world. Now it is being tasked with stimulating growth as well. This was dressed up in technical jargon such as "unconventional monetary instruments to support the economy". What it boils down is that the Bank will be empowered to put more emphasis on growth and less on control of inflation. While the inflation target is unchanged at 2%, it's now officially flexible. (It's been unofficially quite elastic for some time now.)
Mr Carney certainly has a high reputation after sheltering Canada from the worst of the fallout from the financial crash. He will want to sustain his global good name by being a success in London. He is said to harbour aspirations to lead Canada's Liberal party, an ambition which might be advanced by an admired term in Threadneedle Street.Mr Carney certainly has a high reputation after sheltering Canada from the worst of the fallout from the financial crash. He will want to sustain his global good name by being a success in London. He is said to harbour aspirations to lead Canada's Liberal party, an ambition which might be advanced by an admired term in Threadneedle Street.
That said, a hell of a lot is being staked on one man, however talented. The economic situation of Britain is different in many significant respects to that which he faced in his native land. It remains to be seen whether he will use the new powers being proffered by the chancellor in the way that Mr Osborne hopes. It is also unproven whether they will have the desired impact. The Bank has already printed a lot of money to contentious effect and the best that can be said for quantitative easing by its supporters is that things would be even worse without it.That said, a hell of a lot is being staked on one man, however talented. The economic situation of Britain is different in many significant respects to that which he faced in his native land. It remains to be seen whether he will use the new powers being proffered by the chancellor in the way that Mr Osborne hopes. It is also unproven whether they will have the desired impact. The Bank has already printed a lot of money to contentious effect and the best that can be said for quantitative easing by its supporters is that things would be even worse without it.
The Canadian is an accomplished public performer, another quality that recommended him to the chancellor. He was fluent, persuasive and charming when he was interviewed by the Treasury select committee. But it is a very big ask, rebuilding trust in the authorities' management of the economy and giving the public and business enough confidence to start investing and spending.The Canadian is an accomplished public performer, another quality that recommended him to the chancellor. He was fluent, persuasive and charming when he was interviewed by the Treasury select committee. But it is a very big ask, rebuilding trust in the authorities' management of the economy and giving the public and business enough confidence to start investing and spending.
The way the chancellor and his officials talk about the new governor and what they expect him to deliver, this Canadian is a superman. He had better be.The way the chancellor and his officials talk about the new governor and what they expect him to deliver, this Canadian is a superman. He had better be.
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