Conservative Diary

Economic policy

16 May 2013 12:47:44

An improving economy may rescue Cameron and Osborne, but it won’t deliver them from some tricky questions

By Peter Hoskin
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GOBack in the early days of this Government, there was an easy consensus, among many commentators and politicians, about David Cameron's chances in 2015. They would rise or fall, it went, on the strength of the economy. If the Coalition had delivered us from downturn, the Tory part of it would be rather difficult to defeat. If not, then even the Sons of Brown might be given another chance.

That consensus has grown mushier and started to separate since then. This is partially because George Osborne’s economic plan has itself become less distinct, with many of its provisions pushed into the fog of the next Parliament. But it’s also because other arguments have emerged. There are those who say that, even if the economy hasn’t recovered, the Tories will be able to pitch for the don’t-rock-the-boat vote. Some say that, even if the economy has recovered, the next election will be more about living standards. And then still others talk about Europe and Ukip and constituency borders.

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1 May 2013 07:57:44

The Government regards the state-owned banks as symbolically important. The question is how it will use that symbolism around election time

By Peter Hoskin
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LloydsTalk to most Tory advisers about RBS and Lloyds, and they soon get round to symbolism. For now, they reckon, the state-owned (or partially state-owned) banks are symbols of all that was wrong and debased during the pre-Crash years. But in future… in future, all will be different. Returning the banks to the private sector, they say, will be symbolic of an improving economy. These dead weights will have become dead good.

Shuffling through the papers this morning, it seems that this transformation is well on course. After making a £2 billion profit in the first three months of this year, the share value of Lloyds Banking Group is close to the level at which the Government would break even were it to sell off its 39 per cent stake. Both the Mail and the Times (£) contain editorials urging George Osborne & Co. to consider how this might be done.

The Treasury’s stated position is to wait and see. Lloyds still needs to fulfil several requirements before a sell-off can be properly organised. This may even take until after the next election, perhaps 2016.

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26 Apr 2013 18:18:02

How's this for a Treasury team? Liam Fox and Harry Phibbs

By Paul Goodman
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FOX LIAM NEWAs Peter Hoskin suggested on this site earlier this week, that the economy grew rather shrunk in the last quarter is a dash of cheering colour on the canvas - and there is more around if one cares to look, particularly at the buoyant employment figures - but the backdrop against which it was set is bleak.  It is taking the economy longer to recover from recession than it did in the 1930s.  It is impossible to know how much bad debt is still swirling around the banking system.  And it may be that growth rates of the kind that Britain has experienced in the recent past won't return for the foreseeable future.

Houses can't always be built quickly, no new nuclear power stations are likely to go up soon, a decision about airport expansion has been deferred until after 2015 and HS2, like it or loathe it, won't be up and running by the next election.  In short, no new action that George Osborne takes between now and 2015 is likely to make much short-term difference to the economy.  The main right-of-centre alternative to his programme is Plan A on steroids - faster scaleback of public spending and deeper tax cuts, combined with radical supply-side action.  (Michael Fallon has been making a bit of a start in this regard.)

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25 Apr 2013 09:32:41

GDP grew by 0.3 per cent in the first quarter of 2013, according to preliminary estimate

By Peter Hoskin
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GRAph 1

The triple-dip has been averted – for now. The Office for National Statistic’s preliminary estimate has the economy growing by 0.3 per cent in the first quarter of this year. That’s higher than the popular forecast of 0.1. per cent, but it should be noted that some parts of the economy are doing better than others. The services sector grew by 0.6 per cent. Construction shrank by 2.5.

There are plenty of reasons not to get excited about these grand estimates. Chris Giles describes one of them well in today’s Financial Times: “The preliminary estimate of GDP is one of the least important official numbers. Since 2000, this initial figure has been revised by 0.4 percentage points on average.” And I described another in a recent post:

These economy-wide statistics and predictions may be important, but they’re often the only thing that we in Westminster talk about. It’s GDP this, and national debt that – and, all the while, some more unassuming numbers are neglected. It’s a reversal of that old saw: we can’t see the trees for the wood.”

Yet, as I suggested in my post about George Osborne on Tuesday, today’s growth figures are still politically significant. Far better for the Chancellor that he avoids another quarter of economic shrinkage, and that dreaded third technical recession. Ed Balls will have to restrain his bark and his bite.

Not that Mr Osborne’s political woes are over; far from it. Some Tory backbenchers will see today's figures as cause for cheer, but others will put a highlighter to the ONS’s judgement that the economy has been “broadly flat over the last 18 months”. For them, it’s all part of a bad news story that may continue with the local elections, and which they're becoming increasingly tired of.

23 Apr 2013 14:29:15

George Osborne avoids the embarrassment of rising borrowing – but other dangers lie in wait

By Peter Hoskin
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OSborne

That rush of air you just felt was from Downing Street, breathing out a collective “phew”. And the reason why? This morning’s public finance statistics from the Office for National Statistics – rounding off the financial year 2012-13 – have government borrowing falling from the previous year. But only just. The government borrowed £120.9 billion in 2011-12, once various distortive financial effects are excluded. And it borrowed £120.6 billion in 2012-13. That’s a difference of only £300 million, so again: phew.

Of course, fiscally speaking, that £300 million is next to meaningless. Borrowing could have been £300 billion higher than last year – and it might turn out to be, given that the ONS tends to revise its original figures; and, indeed, it was today on some measures – and the overall picture still would have been the same. The Government has basically borrowed the same amount of money for two years in a row. It’s all very different from what was expected three years ago, when the Treasury was working on an assumption of 2.9 per cent growth in 2013.

But politically, of course, that £300 million makes all the difference. Having “public sector net borrowing” declining year-on-year is not one of George Osborne’s fiscal rules, but it has been part of his promise. His opponents will not be able to accuse him of borrowing more than he was last year – at least for the time being.

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20 Apr 2013 08:14:58

Pickles dismantles Osborne's new conservatory

By Paul Goodman
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Mike Jones, the Conservative leader of Cheshire West and Cheshire Council and a senior figure in the Local Government Association, has reason to raise a sceptical eyebrow at how the details of the Government's compromise scheme over home extensions will work.  But there's no doubt that Eric Pickles, who has cobbled it all together, has calmed some quivering nerves.  Earlier this week, a Tory backbench revolt over CLG's original proposal cut the Government's majority to 27.  Zac Goldsmith, one of the rebellion's ringleaders, tells today's Daily Telegraph that the Communities Secretary's approach is sensible: "Crucially it protects people's right to object, which has always been a red line for me. I'm pleased the Government has listened to concerns."

Pickles isn't being blamed for the original snarl-up.  Indeed, it was his appeal to backbenchers, made from the despatch box itself, that soothed the revolt.  The Communities Secretary isn't always an emollient figure, but the former Bradford Council leader is a veteran fixer, and friends tell me that he relished the chance to go to the chamber and quell an upset.  He was in a marvellous position to do so because Conservative MPs, rightly or wrongly, don't blame him for the original plans: they point the finger at George Osborne.  I wouldn't claim for a moment that Pickles encouraged them to do so, but his CLG team is very cool about some of the Treasury's more fervent schemes for growth.

Nick Boles is widely seen as an exception - as a committed ally of the Treasury - but this is to simplify the position.  The Planning Minister has indeed been sent into the valley of death by the Chancellor (as I've put it previously), but he's well aware that this mission puts his political life in danger, and though he believes in the cause - after all, he's backed housing growth since his Policy Exchange days - he isn't at all gung-ho about it.  Indeed, he didn't seek to go above Pickles's head and appeal to Osborne over the climbdown, and played his part in trying to head off the backbench uprising.  But since he's seen as the Treasury's man, he was far less well placed to do so than wily old Pickles.

This week's news from Fitch is a reminder of how desparate Osborne is for growth, and how apprehensive Ministers can be when the quest for it raises thorny questions about principle and practice.  Let me raise just one: if localism means anything, is it right not to allow them local discretion over planning practice on, say, ground floor home extensions?  Different people will answer in different ways, but the question is legitimate.  My own view is that Osborne is more sinned against than sinning when it comes to clashes with other Ministers over growth - that he's on the right side of the argument over housing, airports, infrastructure and green taxes (though he must take a big share of the blame for ensnaring the party in green excesses in opposition).

Which isn't to say that the Treasury's original plans were correct in this particular case.  But the resistance of backbenchers to development on their patches, the ambiguity of the Liberal Democrats (some of whom are pushing More Garden Cities Now), the lateness of part of the Treasury push and the long timetable for building houses conspire against the Chancellor getting big housing growth in the little-more-than-two-year-period between now and the general election.  If the present moment was the start of a new Parliament, there's little doubt what Osborne could and perhaps would do: cut the rise of spending further in order to cut taxes further.  But we aren't there, and it's hard to see where a big upturn is going to come from.

18 Apr 2013 14:04:50

Yesterday’s jobs figures were foreseeable but still troubling

By Peter Hoskin
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Graph 1

After the splendour and sorrow of St Paul’s, the realities of everyday politics – starting with yesterday’s employment figures. They weren’t, in truth, all bad news – for instance, as my former colleague Jonathan Jones points out, there has been a rise in full-time employment – but the headline numbers are still far from heartening. From December to February, the unemployment level was 70,000 higher than in the previous quarter. The number of young people out of work increased by 20,000, and is pushing towards one million. Many of the most encouraging trends of last year have flipped, and flipped proper.

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17 Apr 2013 10:26:26

Why the significance of yesterday's IMF intervention shouldn't be overstated

By Peter Hoskin
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Much ado about the International Monetary Fund’s World Economic Outlook report, which was released yesterday. It’s not so much the fact that they’ve downgraded their growth forecasts for the UK, to 0.7 per cent for this year and to 1.5 per cent for next – we’re used to that. It’s more what they say about deficit reduction. “Greater near-term flexibility in the path of fiscal adjustment should be considered,” reads the report, “in the light of lacklustre private demand.”

So far as this recommendation is significant it’s because it adds to the forlorn chorus encouraging George Osborne to consider a different approach. Not only do we have Ed Balls and Vince Cable, we now also have the International Monetary Fund. And it’s a body that wears its historic importance heavily. No wonder the newspapers – and the Labour party – are getting excited.

But the significance of the IMF’s intervention shouldn’t be overstated, and for three main reasons. Here they are, briefly:

  • An inconstant compass. Guess which organisation spoke of the “credibility” afforded by the UK’s spending cuts, last year? Guess who said, in 2011, that “strong fiscal consolidation … remains essential”? Or, in 2010, claimed that Mr Osborne’s plans were “appropriately ambitious”? Yep, don’t you just know it: the IMF. This isn’t to say that their views should be ignored, just because they may have changed. But we shouldn’t pretend that they are a firm compass, always pointing in the right direction.
  • Advice that’s already being acted upon. Besides, it might be argued that, despite Mr Osborne’s continuing emphasis on the importance of deficit reduction, the Government is already weaving some of that IMF-backed “near-term flexibility” into its plans. Not only has the Chancellor stretched his fiscal rules to breaking point instead of implementing further spending cuts and tax rises, but his last two financial statements have included measures to boost capital spending. Indeed, one of the most important shifts in this Government’s thinking has come over capital spending. There’s a growing belief on Downing Street that they shouldn’t have emulated the pace of Alistair Darling’s proposed, original cuts.
  • And what about the smaller numbers? A point I’ve made before, including in this recent post: focussing on the big forecasts from the big forecasting bodies can lead us to neglect the smaller numbers that often matter just as much. Parts of the UK have been in recession for decades, yet the fury and bluster seems to be held back for when bodies like the IMF change their predictions by a few fractions of a percentage point.

There is one wider lesson for George Osborne in yesterday’s report, however: never place too much stock in the judgements of external organisations, be they monetary funds or credit-rating agencies. They can look favourably on politicians’ efforts sometimes – but, crucially, they can also change their minds.

3 Apr 2013 11:08:39

When it comes to Attack Dogs, Osborne's still a Big Beast

By Paul Goodman
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OSBORNE SWORDGeorge Osborne is no less a pupil of Gordon Brown than Ed Balls, at least when it comes to moving pieces on the political chessboard.  To change the image, Brown was a believer in "dividing lines" - gambits designed to throw his opponents on the defensive.  "Labour Investment versus Tory cuts".  "Labour's 50p rate versus Tory posh boys."  "Labour's NHS investment versus Tory privatisation plans."  Osborne usually swerved to avoid the traps, and has been lambasted for it - especially for his early decision as Shadow Chancellor to stick to Labour's spending plans.  But it's worth noting that after the single occasion when he walked knowingly into one, the party's poll ratings slumped, and the right didn't back him up.  I refer, of course, to the cut in the 50p rate.

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2 Apr 2013 13:54:39

George Osborne’s “man of the people” speech

By Peter Hoskin
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Osborne

First, George Osborne joined Twitter. Then there was his pub-ready Budget. Then there were tweets about football. And now, today, there’s a speech on jobs and welfare, delivered to the staff of a Morrisons depot in Kent. Not only is the Submarine Chancellor becoming more visible, but he’s also becoming less remote. Mr Osborne may never be The People’s Chancellor, but it seems as though there’s at least some effort in that direction.

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