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Osborne needs to start explaining Plan A, or work on Plan B

Posted on 4 June 2011 | 10:06am

There is something to be said for George Osborne’s modus operandi – which is to set bold strokes, speak in public when he has to, but otherwise keep his head down.

It is an approach, however, which suits itself better to strategies of blinding clarity where the steps being taken will almost certainly lead, all things being equal, to the outcomes predicted for it.

However, even the most benign analysis of economic indicators at home and abroad – more bad news from the US yesterday – would suggest that is not the economic enivoronment in which the Chancellor finds himself.

Take the latest report from Markit, which analyses activity in the UK services, manufacturing and construction sectors, and which is now predicting growth in the second quarter of the year to be just 0.3 per cent, down even on the 0.5 per cent of the first quarter.

The purchasing managers at services companies reported that their businesses expanded in May at their slowest rate for three months. This follows a similar Markit survey in the manufacturing sector earlier in the week, leading the analyst to warn that the Bank of England may need once again to downgrade its growth forecasts.

There was an interesting observation too in the report by The Office for National Statistics on construction orders, which showed a drop of almost a quarter during the first three months of the year, the sharpest fall since 1987. The companies hardest hit are explicit in stating that the fall is linked to the working through of cuts in public sector investment.

Of the many big holes at the heart of Osborne’s Plan A one of the biggest has been the assumption that the private sector will fill the jobs gap left by the public sector cuts. I have never heard Osborne, or anyone else, explain how that is to happen.

That might explain his relative silence. However, as one of the few genuinely powerful figures in the government, he is reaching the point where he either needs to step up his explanation efforts, or he needs to be dusting down Plan B.

  • MicheleB

    Considering that Wiki is easily corrected/edited if its info is incorrect, I’m amazed to be just finding out that Osborne is another that flipped homes for his expenses.
    http://en.wikipedia.org/wiki/George_Osborne

    I’m also amazed at what little there is in his background that qualifies him for any kind of economist role. 

    The country’s being led by three usurpers that had very little experience of anything parliamentary before getting to where they are.

    It really is all sadly amazing.

  • jimbo9981

    I dont think George is capable of anything beyong “Everyone knows it’s like a household credit card”! Given this flies in the face of any reasonable plan for economic growth, hopefully that will wear thin. 

    Why can’t the opposing talking head respond – “It is not like a credit card George. If someone loses their job due to cutbacks the government face the double burden of no longer recieving that persons income tax as well as paying them job seekers allowance – that is nothing like my Tesco credit card George!”

    “Private sector stepping in” sounds like the NHS reforms – companies like Serco (or perhaps even Tesco) licking their lips.

  • Olli Issakainen

    Mr Osborne´s plan A is not credible because it does not have any plan for growth.
    The Tories believe that state should look only after inflation and interest rates and leave the the rest to the invisible hand of the markets.
    In the Budget there were some microeconomic supply-side measures, but the problem is insufficient demand.
    Cutting spending while rising taxes leads only to fewer jobs and overvalued sterling.
    Britain will now face years of very slow growth. France and Germany will grow about 2.2-2.6% this year.
    And there is also continued danger of another major financial crisis.
    As David Blanchflower wrote in the New Statesman, markets did not necessiate austerity on this scale, or speed.
    There is alarming weakness in both consumption and investment. There is a pile of money of over £70bn in Britain, but businesses are not confident enough to invest.
    So recovery in Britain is faltering because Mr Osborne has made a wrong macroeconomic choice. Near-zero interest rates are not helping, and new round of QE has limited potential.
    Fiscal policy involving the use of GOVERNMENT SPENDING and TAXATION has the best chance to speed up recovery.
    Private sector will not pick up speed unaided.
    Mr Blanchflower writes that there was never urgent debt problem in the UK, and there is not one today. All that was needed was policy of how the debt was going to tackled when recovery became more robust.
    Mr Osborne used scare tactics and spoke of Greece, bankruptcy etc. in order to get support for his IDEOLOGICAL cuts he would not have otherwise got.
    But what he achieved was loss of confidence both in consumer spending and business investment.
    There should now be postponement of fiscal contraction combined with no change in monetary policy.
    Between 2007/08-2009/10 there was a collapse of economic activity. Nominal GDP fell 1.4% (£20.6bn) and tax receipts dropped 5% (£27.3bn). Financial crisis meant £140bn damage to wider economy.
    Even if Labour had run surpluses, there would have been loss of output in the UK.
    George Osborne made a wrong call on the cause of the deficit (Labour overspending), and now he is making a wrong call on how to deal with the deficit with his cuts that are too big and too fast.
    Immanuel Wallerstein wrote in Foreign Policy that we are not operating in a normal business cycle. We are not recovering from the Great Recession.
    Our existing system has a shelf life, and it is coming to an end. Current financial sector distruptions will end in insolvency in the public sector.
    The rising cost of production and increased demand for government support services are the problems.
    Current chaotic fluctuations cannot be controlled by policy. His conclusion is that THE PRESENT SYSTEM IS COMING DOWN!
    But where is the anti-capitalist ideology?
    Humanity is at crossroads of the most serious economic and social crisis in modern history
    The cause of global crisis is corruption, financial manipulation and institutionalised fraud and bankers´ greed. The system is fundamentally broken.
    We need a new global answer to the global crisis.
    Many believed that in a new liberal age after 1989. But social-democratic parties are shrinking.
    We need a new ideological basis for idealism.
    We need to revive the old alliance between the progressive intelligentsia and the poor.
    New answer to welfare could be found in socialism.
    For a new world, we need new economics.
    We need better regulation. Bad economics led to the 2008 crash.
    Macro policy geared towards inflation control coupled with micro policy based on tax cuts for rich plus deregulation and globalisation produced the crisis and inequality.
    We also replaced real investment with speculation in financial assets. But making few people rich does not make all of us rich.
    Both governments and markets are fallible. We need a synthesis. We need a new colloboration between economics and politics.
    Governments should be somewhat smaller, but more active for economic security.
    On macro side this means reinstatement of Keynesian demand-management with a nominal GDP target.
    We need to switch from income and capital taxes to consumption and energy taxes. If we want more state spending, we have to accept a less redistributive tax system.
    Health care, pensions and education systems could also be partly privatised.

  • Spectator

    The economy is going t**s up thanks to this mendacious Clown. Osborne is educated beyond his ability and is inept in the extreme.

  • Patsy McArdle

    Agree with all that, but am also asking where is Labour in all this? When Ed Balls was first made Osborne’s shadow he showed a lot of verve and energy in going after him. But he has gone quiet again. Arguments like this have to be made all the time, incessantly, to get through to the public who are inherently suspicious of Osborne. Also with all the problems going on for the coalition about health and social care, who and where is Labour’s health team? 

  • Philip Stewart

    I run a small business in the West Country. If the recovery is here, it is passing me by, and passing all my neighbours by too. 

  • Robert

    Plan “B” – being developed in Brum – offshoring council/public sector back office jobs to India.

    Fairly self explanatory I’d have thought.

  • ambrosian

    It’s actually a triple whammy because that unemployed person then has less money to spend in Tesco and other retailers, the tourist industry, etc thus contributing to further falls in economic growth, more unemployment…….and so it goes on, blindingly obvious to any kid with a GCSE in Economics but not apparently to Osborne.

  • ambrosian

    The error is not just the fanciful belief that the private sector will fill the jobs gap left by public sector cuts. When public sector funding is cut, jobs are then lost in the private sector from whom the public sector is a major purchaser of goods and services.

    We don’t just live in a ‘mixed economy’ but in one where the different sectors are inter-dependent. If Osborne and Cameron had ever done real jobs in the real economy they might be aware of this.

  • MicheleB

    It’s frustrating but I think for the time being Labour are wise to be restrained, lay off the attacks, avoid the misinformed responses / rantings of the right wing press that still support the Coalition (on the basis that support will carry things … duh).

    A majority showed its misled opinions last Spring in the sheer spite pointed at GB.  I cringe every time I think of the misinterpretation of his nature, he’s not cut out for a popstar whereas the TV debates pumped up someone cut out for nothing else.

    He, TB and Darling planned from their hearts and for society. 

    Re Dave’s ‘Big Society’ it’s plain he did no investigation of what already existed. He presumed nothing did.  Not everyone’s voluntary work can be as high profile as his magistrate mother’s (she who I think he exploited shamelessly to jibe at Harman). 

    We have thousands of people in every community that work in charity shops, collect for charity shops, collect for national charities, visit hospital patients and help low-cost but principled and sensible organisations, his ignorance about all that reflects nothing more than his lack of curiosity about how society really functions.  Curiosity about things is difficult to achieve.

    Queueing for a cheap flight doesn’t impress (I doubt it did either for those passengers for whom so many seats were not available ….. 2+3+how many of Sam’s six personal aides – unless there are even more in Downing St?).

  • Gilliebc

    Good blog post AC and many good comments in response.  All of which I agree with thus far.

  • Gilliebc

    “Humanity is at a crossroads of the most serious economic and social crisis in modern history”  I couldn’t agree more Olli I.  That is definately correct and the causes you state for this being so are also correct, I believe. But given that this has been the long-term plan of both main parties for well over 100 years, the only thing that surprises me slightly is the fact that the majority of people still haven’t cottoned-on yet!
    Surely most people must at least be a little suspicous of the way things are being played out with this ToryLed government bringing the country to it’s knees and Labour doing and saying nothing to stop them.  Opposition, what opposition?
    New World Order/One World Government is coming closer all the time.
    And no, it will not be a good thing.  Far from it.  Is there anything we can do to stop it?  Short of a military uprising, probably not.

  • Yonks

    ‘done real jobs’….just like good old Gordon then and come to think of it Ed too…both Eds!

  • ambrosian

    You are absolutely right. But  neither Gordon nor the two Eds are in power and pursuing the current catastrophic policies.
    Glad you don’t disagree with my main point about the nature of our mixed economy.

  • “Humanity is at a crossroads of the most serious economic and social crisis in modern history” ….just about sums up life on earth! I just hope the next generation have the capability and the will to sort out the mess! I feel ashamed! Good post.

  • Dave Simons

    ‘New answer to welfare could be found in socialism.’

    Not exactly new though, is it? Two hundred years old more like! There have always been umpteen definitions of socialism and the word has suffered from its misapplications. Let’s go back to the nineteenth century. Marx was at the head of a movement towards more democracy, and he was about as small-statist as you could get – remember the withering away of the state in the Communist Manifesto of 1848? It is unfortunate in retrospect that Marx used that expression, ‘dictatorship of the proletariat’, meaning majority rule, since the proletariat were the majority. Opponents have homed in on ‘dictatorship’ and not mentioned ‘proletariat’. Bit of a contrast to Stalin – the all-powerful state and not a smidgeon of democracy. Dictatorship by a small elite of state bureaucrats who claim to represent the proletariat.  But whenever people – Tories especially – talk about socialism, it is the Stalinist model and practice to which they are referring. And they are right to say that it kills initiative, enterprise, freedom of expression, civil liberties and all the rest. We have to revisit the earlier definitions of socialism which give everyone, not just the few, the opportunity to use initiative, be enterprising and take responsibilty in a public-spirited way. As always though, we are up against the capitalist mode of production, distribution and exchange, and the big question for us, as for previous generations, is how do we get from one system to another? Or maybe we think capitalism is what we’ve got and it’s about the best humanity can manage so let’s try to work it in our own interests in a perpetual war of all against all? The Tory party is stuffed full of people who think like that.

  • MicheleB

    Catching up with papers to throw out, a slow process as I suddenly notice things I’d missed.  This from the i paper of Wednesday :

    In a remark that infuriated  … Shirley Williams, Mark Britnell, a member of the kitchen cabinet appointed to advise the Prime Minister on the reforms, was reported to have told private sector executives in October that the reforms would offer a ‘big opportunity to the private sector’.

    WHOSE NHS Lansley?  
    Ours or investors from horme OR abroad?

    .

  • Quinney

    According to the Sunday papers economists from the left and right are saying Gorgeous George has got it wrong. That’ll mean that the Gorgeous one will be told from the loons of the 1922 committee that it’s not working because he’s not cutting deep enough. Time for more distractions then via the tory press
    as Teflon Dave and SamCam are clubbing in Ibiza wiv da yoof. That must mean that Nick Clegg could be in charge as Billy 16 Pints is in Libya with the rebels (telling them that we’d do even more if we had an aircraft carrier complete with Harriers, Nimrods and weren’t making our RAF pilots redundant).

  • Mike

    It makes sense for Labour to hang fire. Osborne, Cameron and Clegg are riding a runaway train heading toward a rickety bridge.  The longer Osborne sticks to plan A (whatever it is) Labour’s chances of destroying this coalition get stronger.

  • Yonks

    You’re correct of course, I do agree with the main thrust of the argument but I would also ‘throw into the ring’ their failure to cope with a simple drain on the economy….the EU. This is surely a very simple way of getting ‘everyone’ on side.

  • MicheleB

    Yep, both Eds did have real jobs before entering political careers.  It’s very easy for you to check; do so for yourself.

    If you’re going to indulge in sticking up for those who only worked in family companies or on PowerPoint schmoozing it’s worth knowing what ground you’re on. 

  • Anonymous

    A? B? I didn’t think snake oil came in more than one variety.  

    Most people knew Osborne was just an economic car jacker, didn’t they?  Good to have it confirmed by facts and figures, I guess.  

    Curious that the wonky obsession with ‘the deficit’ has eclipsed any wider discussion of how a country can be successful.  I notice some councils are writing leaflets presenting their cuts as ‘deficit reduction’ strategies.  It’s become an ideology, and a bankrupt one at that.

  • MicheleB

    Oh dear, I think I put this /   on the wrong thread

  • Yonks

    They were both in non-jobs, brief careers in journalism prior to becoming spads hardly qualifies them as experienced real job individuals.

    I suggest Michele that perhaps you should remove the rose-tinted spectacles and perhaps be less economic with the truth as the judge would say.

  • MicheleB

    It seems LittleO ( 8.10 interview on Today) thinks Plan B is already there, within Plan A.  He just doesn’t call it that.

    It goes under the heading of ‘flexibility’ and the inbuilt hopes that if some vague  target isn’t achieved by Yr4 (?) it will definitely be achieved by a year later.

    3hr programme here :
    http://www.bbc.co.uk/iplayer/console/b011qfln
    and the knob slides along to 2h10m for the interview on Listen Again.

    —————–

    Someone was telling me today that the new NI pension situation, that of everyone having a flat rate of £140 (in today’s money)  regardless of NI input isn’t as generous as it sounds. 
    As an ERS payer for decades he’s aware that he’ll draw slightly more than that and be well over the ceiling for means-tested benefits like rent, council tax, dental treatment (all of which often take lower-pensioned people to a far higher total per week than people like him would get). 
    With the equivalent of £140 everyone will lose those extras.

    .

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  • MicheleB

    Which rose-tinted specs are those Yonks?
    GB started work at age 16 while still a student.  There’s no doubt possible about the steel.
    What is this anyway?  Perhaps your post was written before the admission we all had yesterday that actually LittleO’s Plan B has all the time been within Plan A under the pseudonym ‘flexibility’.

    There is just no point in comparing accomplishments (given the type of them) of people that are only where they are because of who they know and who their grandparents were (or even their wife’s grandparents) and who gave them their ‘jobs’.

    CamSham and Clegg each became leader of their party due to a dearth of applicants after years of leader-shedding so if you really want to talk about experience and real jobs why not add experience of Parliament (absence of it) to the pot ?

  • Yonks

    Thank you so much Michele for giving me the ‘low down’, actually my specs are more greeny-black than rose as I’m in the brightest sunlight you can imagine.
    Anyway, the point is that they are all a shower in it for their own benefit, they go into politics with the best of intent but that seems to rapidly change.
    Why for example, is GB setting such a good example by drawing his MPs salary and virtually never attending? There are plenty more like him….flotsam in many respects!

  • Dave Simons

    Just to append this post, I couldn’t have wished for a better confirmation of what I said about the Tories talking about socialism than an article in yesterday’s ‘Times’ (Saturday 11th June 2011) by Matthew Paris. Life for dear old Matty, with his llamas near Elton, Derbyshire, is very simple. Towards the end of 1917 there was a Bolshevik revolution in Russia which brought about socialism. This lasted from 1917 to 1991. Socialism was tried and tested and it didn’t work. Capitalism, for all its faults (which Matty painstakingly details) does, on balance work, and it is natural and in accord with human nature. The Labour Party and the Left in general have to get this into their thick skulls – then they’ll be able to get real and move forward.
    The debates which continue to take place about what went wrong in Russia seem to have passed Matty by, or maybe he just wants to pretend they don’t exist and never existed. The word ‘revolution’ gets misapplied to any kind of change, so people talk about ‘The Thatcher Revolution’ when ‘Counter-Revolution’ would be more appropriate – after all she did want to turn the clock back to the time of Pitt the Younger and his Combination Acts. Trotsky wasn’t the only participant in the Russian Revolution who talked about ‘Revolution Betrayed’, although he was one of the longest to survive Stalin’s hit-men. George Orwell used the theory of ‘bureaucratic collectivism’ in his dystopian novel, ‘1984’, a theory he got from the American Marxist, Max Schachtman. Various Troskyist or Trotskyist-derived groups have either continued Trotsky’s analysis of the ‘degenerated workers’ state’ or come up with ‘bureaucratic state capitalism’.
    As an entree into Conservative thinking (or non-thinking) on this matter, Matty’s article in the ‘Times’ is a little gem. He even evokes the Conservative guru, Adam Smith, but as usual gives the selective view of Smith which omits his positive support for what would later be called trade unions. Near the beginning of ‘Wealth of Nations’, Smith makes the case that if it’s OK for capitalists to form combinations to protect their interests, it should be OK for wage earners to do the same in a free market place. I don’ think the Tory think-tank, the Adam Smith Institute, would condone this, and I’ll bet they’re over-the-moon about Vince Cable’s recent speech to the GMB about the possibility of further union legislation.