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1/10 Tests for the Autumn Statement: Will Osborne stand firm on deficit reduction?

By Tim Montgomerie
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Over the course of today I'll suggest ten benchmarks with which to judge the Chancellor's Autumn Statement. Much of that Statement has already been pre-briefed. Some say this has happened in order to ensure maximum exposure for complicated initiatives like credit easing. Others, more cynically, believe that Osborne is getting out the good news now so that it's not buried by the bleak forecasts for growth that the Chancellor is expected to have to announce.


The most important thing that Osborne must announce tomorrow is that there will be no retreat from his deficit reduction strategy. That there'll be no Plan B. In his ConHome column Bruce Anderson spells out the consequences if he did retreat:

"He must persuade... the markets, that there is no question of plan 'B'. Nor should there be. That would be fatal, politically and economically. The markets would lose faith, with appalling consequences for credit ratings and interest rates. The voters' faith would rapidly follow. Governments can survive tactical retreats, which create a noise at the time but are quickly forgotten. They cannot survive strategic retreats. To withdraw from plan 'A' now would be the most disastrous retreat since Elphinstone quit Kabul in 1842."

No investor or voter would ever believe Osborne on Cameron on anything ever again. Deficit reduction is the centrepiece mission of this Coalition but, as Nick Watt blogged overnight, it actually has a lot of flexibility within it. Mr Osborne is only committed "to ensure that the structural current deficit is in balance by 2015-16, which is, crucially, after the next general election" and his second key target "that debt is falling as share of GDP by 2015-16... simply means that debt in 2015-16 must be lower than the previous year, however high the figure in 2014-15."

What is important is that markets see concrete steps being taken now and every year towards meeting those flexible goals. Without markets being reassured we may see the costs of servicing our debt rise and the low interest rates that business want most could be jeopardised.

Osborne's deficit reduction strategy is not ideological. Western countries have gone past the point where any extra borrowing is sensible. Osborne's fiscal policy is endorsed by nearly every international economics body. It mixes spending cuts and tax rises in proportions that are straight out of IMF and OECD orthodoxy. And the public seems to agree. Polling published by Lord Ashcroft over the weekend (summarised here) finds 60% to 40% support for the Government's argument that "we have to bring the debt and the deficit under control even if it has some painful effects for the economy in the short term" compared to the government "should cut taxes, and/or cut spending less fast, even if that means we go on borrowing more for longer".

> Test 2 at 10am: Will Osborne fight for the fairness agenda?


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