George Osborne has just addressed the LSE on The Economic Policy of Recession. At the heart of his speech is the idea that control of the public finances is necessary to give the Bank of England the freedom to cut interest rates. In recent days his approach has won the support of former Tory Chancellors, Lord Lawson and Lord Lamont.
Mr Osborne concluded his speech with these words:
"There is now a clear choice in British politics. Irresponsible borrowing now and higher taxes later under Labour. Or the responsible Conservative plan, enabling the Bank of England to deliver a sustained cut in interest rates and lay the ground for lower taxes later. Helping families and businesses today by getting money into their pockets directly, instead of hoping that trickle-down public spending will work one day. Building a better economy for the future through economic change, not more of the same. And above all, preparing for the recovery through fiscal responsibility, not burying it under a mountain of debt before it starts.”
Other highlights of the Shadow Chancellor's speech are pasted below:
Labour governments are all essentially the same: "On the wall of my office in Westminster is a set of cartoons from the 1970s depicting the economic calamities of the time. One shows Denis Healey sitting at a desk with his in-tray piling up with problems – home economy, unemployment, inflation, world trade recession. Another shows him raiding a child’s empty piggy bank. A third shows the manifesto promises of the Labour Government of the time overwhelmed by an economic avalanche. Visitors to my office used to look at these cartoons and remark how the world had changed. I now look at them and think how much is now the same."
The automatic stabilising role of fiscal policy: "Government borrowing rises automatically in a recession, as tax revenues fall and spending on unemployment benefits rises. This is what is meant by the term “the automatic stabilisers.” That is not a virtue, it is a necessity. So these “automatic stabilisers” should be allowed to function. That is what is starting to happen now. But we shouldn’t be fooled. This increase in borrowing is the inevitable consequence of recession not a strategy to fight it. It is an overdraft, not a plan."