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Lord Lamont: George Osborne is doing the right thing and history will judge him well

Lamont Norman July 2011By Lord Lamont, former Chancellor of the Exchequer.

No Chancellor of the Exchequer can expect to be popular during a recession.  George Osborne has had a difficult few months but he has stuck resolutely to his guns and deserves support.

During the recession in the early 90s, I got into trouble for spotting “green shoots” when most people couldn’t see them.  Later, it turned out it was correct but it didn’t do me any good.  George Osborne will wisely be careful about any predictions.

The future is unknowable.  But there are some reasons for modest optimism.  Surveys of manufacturing and services industries have been encouraging.  The private sector has been generating more jobs than the public sector has been shedding.  Employment has increased by 236,000 in the last three months. Job market participation – those in work or looking for work is at a record high.  No nation other than Canada in the G7 has such a high employment rate. I stress these numbers because they are at odds, and more encouraging than the GDP figures which many feel may be overstating the recession.

The fall in inflation is also encouraging.  Consumer spending has been severely squeezed by inflation out-stripping wage increases.  A further fall towards the year end will give a boost to consumer spending and help the prospects for recovery.

Some Red Tories think the Government’s rhetoric places too much emphasis on deficit reduction and not enough on some ill-defined “vision for the future”. When I hear calls for more vision, I remember Senator Robert Dole’s retort when told he “lacked vision”.  “Vision of what?”.  Of course, deficit reduction is a means to an end;  a wealthier, prosperous, dynamic growing Britain. But it is also the most important problem facing the Government and inevitably overshadows all else.   Far from overemphasising the deficit too much , we are in danger of forgetting and therefore letting the country forget, the enormity of the crisis the Government inherited and which continues.  Labour seem to think that they are entitled to swagger back into office because this Government hasn’t yet wholly cleaned up the enormous mess they left behind.

The Government has up to now been broadly on target in its deficit reduction. In June 2010, George Osborne’s newly created Office for Budget Responsibility (OBR) forecast borrowing at £155bn for 2009-10, dropping to  £116bn in 2011-12.  In fact, there has been a slightly larger drop than forecast.  There are some doubts whether the target for the deficit this year 2012-13 will be met because of the slow-down in the economy.  If that happens, it is certainly not a cause for panic.

Ed Balls has been partially successful in spreading the myth that he has been proven right  in forecasting the slow down in the economy and even more absurdly that this is due to the Government’s “harsh” spending cuts. It was always on the cards that we would have periods of  negative growth.  Britain had one of the biggest banking crises of any country and had no equal in the large overhang of private as well as public debt.  Sluggishness in the economy is because of the enormity of that debt. Running a higher deficit would do nothing to improve matters.

Labour always promise a free lunch. If we have too much debt, Labour’s answer is “Let’s have some more” and magic the existing debt away. It is all painless, according to them.  If only life were like that. 

Voters sometimes get confused between the Government’s annual borrowing requirements “the deficit” (currently around 7-8% of GDP) and the total stock of national debt (expected to peak at around 80% of GDP).  The annual deficit, of course, is the amount that we add each year to the total debt.  Although Britain had initially a relatively low total stock of debt, our annual deficit was at the same level as that of Greece. It doesn’t require a mathematical genius to see that, if you go on adding to the total indebtedness of the country at a rate of 12% or 10% per annum you could quickly produce a result in which the country will be as deep in debt as Italy (over 100% of GDP).

Far from slash and burn, the Coalition’s plans for deficit reduction have been carefully calibrated.  We started the crisis with a deficit equal to that of Greece.  Not being in the euro, we have had more flexibility and today our deficit is higher than that of Greece, France, Italy and Spain. The reality is that the deficit reduction has been gradual and designed to not snuff out the recovery. 

Ed Balls likes to point out that the total stock of debt of the country is still increasing as though that is somehow criticism of the Coalition. Yes, the debt has increased and will increase but that is because the deficit reduction has been deliberately gradual. 

During the Conference we will hear cries for “a growth agenda” and policies to kick-start the economy.  Of course, the Government should and, indeed, the Government is designing policies to improve competitiveness, lift the burden of regulation and free up the supply side of the economy.  But these policies take time.  The economy is not some motorcar stranded in a snow storm that is suddenly going to run away if the battery is connected to a couple of jump leads. It is unrealistic demands for a kick start that have led to too many rounds of quantitative easing by the Bank of England.

Governments don’t have it within their power to “grow the economy”.  But Governments make a myriad of decisions, every one of which, adds or detracts from the prospects for growth. 

There is no room for complacency.  But Conservatives must hold their nerve.  A Labour lead of 10 percentage points at a time of austerity means little. Neil Kinnock, a more human figure than Miliband, during the Thatcher glory years, regularly had bigger leads. Voters don’t believe in Ed Miliband as PM, even when he cross-dresses as Disraeli.  What the Coalition is doing in difficult circumstances is brave and right.  Even if there is a period of unpopularity there is everything to play for and history judges well those who try to do the right thing.


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