George Osborne: I can't promise any quick fixes for UKplc

Anthony Browne of Policy Exchange introduced George Osborne at 11am this morning.  Anthony noted that he was an economic correspondent ten years ago but gave it up - in part because economic journalism had become boring.  It isn't boring anymore, he noted, as he invited George Osborne to set out An Alternative Vision For The Economy.

Most of the Shadow Chancellor's speech was a well-crafted attack on Labour's failure to deliver stability, prudence or improved productivity - the three pillars of economic success, said Osborne.  The final section sketched out An Alternative.  Here are its key themes:

On stability...

• "A broader collateral swap programme supported by the Treasury could help. This would allow banks to swap their illiquid mortgage backed securities for liquid government bonds."
• Stronger Bank of England independence by giving the Governor a single, longer term.
• The Bank to lead on rescuing troubled banks.
• New capital adequacy requirements for banks that would include an extra restraint for banks to abide by in boom times as well as standard prudential requirements.

On prudence...

• The fiscal rules will be independently verified under a Conservative government.
• Over an economic cycle the proceeds of growth will be shared between taxpayers and the public sector.
• There will be no upfront, unfunded tax cuts.

On productivity...

• Tax relief over time for businesses and first-time homebuyers and a simplification of the tax code.
• Laissez-faire economics isn't enough anymore. A Conservative government will actively improve transport infrastructure, invest in skills, and provide active support for businesses.
• Plus education and welfare reforms that will prepare a new generation for work.

Anyone wanting thoughtful ideas for addressing Britain's immediate economic challenges would have been disappointed by this speech.  It was all long-term thinking on how a Conservative government would fix Britain's broken economy.  The long-term ideas are all sensible but there were, for example, no ideas to help businesses now or to relieve the low income families hurt by Labour's abolition of the 10p band.

Read the full speech.

Related link on CentreRight from Andrew Lilico: Why Price-Level Targeting would have been better than Inflation Targeting at addressing the consequences of asset price misalignments

Comments

[Jim]

Osborne won't be able to promise any fixes for UKplc for as long as he continues to adopt labour's spending proposals.

[Iain]

"Anyone wanting thoughtful ideas for addressing Britain's immediate economic challenges would have been disappointed by this speech."

I am sorry to say I have found that to be the case with most of what George Osborne has to say.

But can some one tell me what the economic cycle is. Yes I am aware that the economy goes up and down, but to claim a cycle suggests that there is a predetermined time, length, duration, depth and height to an economy, but as far as I am aware there isn't such a thing. As I said there are ups and downs, but you cannot predetermine where they are, thus to claim you are setting economic policy for some undeterminable event is ludicrous. It seems to me the Conservatives have bought into some hokus pokus economics that Gordon Brown has made up to sound like he knows what he is doing, and that its all a science, when it isn't, and as such its some thing the Conservatives should have rubbished, but didn't, and we now find its an article of faith with George Osborne.

[Sammy Finn]

If the economy recovers by 2010 George Osborne risks looking silly.

[Andrew Lilico]

>Anyone wanting thoughtful ideas for addressing Britain's immediate economic challenges would have been disappointed by this speech.<

I don't think that's right, Editor. The proposal for a broader collateral swap programme, though misguided in my view, was intended to address current issues; and putting the Bank of England in charge of bank rescues could be instituted immediately and might have a useful effect.

I'm not convinced that there really *is* anything to do that would be a good idea. Most responses would consist in bailing people out of bad decisions. Many people who borrowed seven times their incomes so that they could buy a house, thinking that it was a way to get rich quick, are going to lose all their money. That's tough - welcome to the world of financial speculation! The banks that lent them the money are going to lose some of it. Tough - you're supposed to be experts and you should have known better!

Furthermore, it's not as though these events have occurred quickly, on a timescale that ordinary people could not be expected to respond to. Everyone worth listening was saying by 2004 that UK house prices were at least 30% overvalued. The IMF said this; the OECD said this; all the best City commentators said this. So people have had nearly four years to sell up. If they haven't done so yet, whose fault is that?

[spagbob]

well done George. It's about time the tories stood up with an economic policy of their own that wasn't just "tax cuts for the rich". I'm glad to see George focusing on fiscal conservatism and sound money, instead of listening to the silly calls of some people for massive tax cuts that would mean the country getting into more and more debt and more serious problems.

Conservatives are supposed to be fiscal conservatives committed to the balanced budget and saving in times of plenty for times of hardship, not irresponsible tax cutters. Irresponsible tax cutting is liberalism not conservatism. Yes taxes can be cut if spending is also cut, but no serious government would advocate massive spending cuts if they wanted to have any chance of being re-elected.

Don't bring up the Laffer curve and tax cuts leading to growth - the evidence for that is hazy at best and certainly failed in America in the 80's and now under Bush.

Osbourne is being responsible arguing for sharing the proceeds of growth between lower taxes and higher spending. He is also being responsible arguing that the conservatives must first spend the money on reducing the debts and then look at tax cuts later. That is a fiscally conservative position.

It's also nice to see him explaining that lassiez faire isn't enough either, but that in some cases government needs to be there to help by building infrastructure and helping people get more skills.

[Tony Makara]

"Laissez-faire economics isn't enough anymore. A Conservative government will actively improve transport infrastructure, invest in skills, and provide active support for businesses."

Very good from Mr Osborne. The promise to invest in skills will I hope include allowing the long-term unemployed to train at college or on a placement with a skills providor while being able to draw benefit. Currently many of the jobless are prevented from re-training at college because those on JSA cannot claim the Adult Learning Grant. It is far better to pay someone benefit for eight months while they train at college and then have them move into work with their new skills rather than to pay them benefit indefinitely with no recourse to training.

The support given to developing transport infrastructure is especially welcome and any contracts given out might carry a proviso that some of the jobs created go to the unemployed. In fact this should be a specific condition of all such government contracts.

[Charlie Elphicke]

This is a very important speech. It answers the question "are the Conservatives ready for Government?" in a very positive way.

George is right to say there is no quick fix, because there isn't one - and right to say matters could be eased short term by collateralised swaps.

This is also important as it sets out the agenda for putting Britain back onto the right track over the next ten years. The policies outlined on transport and education will make a great difference.

[Adam in London]

Editor - when George Osborne says that the government has left itself with almost no room for maneuvere what with stoking inflation, rising public sector debt, and rising public sector borrowing, and PFI liabilities kicking in etc. etc. he isn't scoring a cheap political point; he's deadly serious. If the government is restricted in what it can do, so is George.

[graeme archer]

Exactly Adam. To the Editor- the correct media response to "what would you do in this mess" is "we wouldn't have BEEN in this mess". Had we remained in govt, to be very specific, the nonsense of the 10p tax band would not have occurred. We would have continued flattening tax and raising the threshold- all the current problems were Made By Brown. Don't play labour's game.

[Sean]

From this summary, I think that Osborne's approach is the correct one to take. The fact is that the problems that are besetting the economy have been buiding for a number of years and will not be fixed overnight. It will take changes to the financial system, coupled with genuine Government spending restraint to rebalance the economy.

I am quite interested in the swap. By having more liquid Government bonds, we can say that the liquidity risk has been reduced, but who holds the credit risk for the mortgage securities? If the credit risk is held with the bank in question then the swap is problematic to book in the accounts. If the risk is effectively transferred then it is incredibly stupid for the government to hold risky assets. Will this swap extend to interest payments like regular IR derivative swaps? Exchanging a variable mortgage rate for a government bond yield? More information will be welcome for this finance nerd.

[ChrisD]

"Anyone wanting thoughtful ideas for addressing Britain's immediate economic challenges would have been disappointed by this speech. It was all long-term thinking on how a Conservative government would fix Britain's broken economy."

I agree with Adam and Graeme's points. The whole point of that speech was to undermine Gordon Brown and the myth that is his record as Chancellor, "Brown's policies are a major cause of this mess and he is therefore not the man to fix it etc etc.
Osborne wants to project an image of a shadow cabinet team who are prepared and capable of taking on the challenge of an economy in trouble at the next GE.
What he does not want to do is be tied into a pathetic media game of ping pong with the Treasury over figures for every tax policy. It would deflect the attention away from Labour and Brown's current woes and be counter productive. He wants the media to be pulling Brown's record apart rather than concentrating on what the Conservatives would have done instead!
Osborne is an extremely astute politician, often looking and planning one step ahead of those that seek to jump in and criticise him.
Saw him earlier on C4 up against Jon Snow, rough interview, but he got all the valid points he wanted to make across.

[Iain]

"Saw him earlier on C4 up against Jon Snow, rough interview, but he got all the valid points he wanted to make across. "

A rough interview because George Osborne puts his foot in his mouth and manages to alienate all the interviewers. If the Conservatives are going to try and get their economic message across, if they have one, they aren't going to do it with George Osborne.

[Iain]

"what would you do in this mess" is "we wouldn't have BEEN in this mess"

That's fine up to a point, but we are where we are, and as such the Conservatives have to have some broad policy to suggest what they would do in the current situation, for that's what they are going to get, not be able to wish for something different.

[StevenAdams]

I didn't see the interview but hve read mixed reviews.. What're everyone's verdicts?

[David]

"It was all long-term thinking"

Oh dear; and what is really needed is short-term knee jerk responses.

[David Belchamber]

" didn't see the interview but hve read mixed reviews.. What're everyone's verdicts?"

I thought he was terrible, Steven. He just hasn't got a grasp for figures and he came over as being evasive and tried to talk through Jon Snow who wasn't being too tough with him.
To be fair, he finished well.

[Iain]

"To be fair, he finished well."

Yes , but it was disastrous everywhere else. Every time I see G.O interviewed, the interview degenerates into a nasty bad tempered slanging match. I don't know what it is with G.O but he seems to succeed in getting up the nose of all interviews. Part of the problem I think is the G.O, as I said earlier, puts his foot in his mouth, possibly in an attempt to be political, which doesn't go well with economics, and when asked to explain himself gets whiney and defensive.

[David Bodden]

Why should there be any investment in skills? The current policy of the Conservatives is to support the nuLieBore regimes one on allowing cheap, overseas imports to displace native suppliers of those skills. It is folly to invest in skills for an individual, or the state, if at the same time the state acts in an openly hostile way that prevents a return being made on that investment. Before there can be any investment in skills we need a government that does not wage war on its own people and instead protects them. Maybe even repair the damage done. Is there a chance of that happening – NO.

[Pete]

How can Osborne possibly claim he will take control of the British economy when the EU says that any or all of 500 million can settle here if they feel so inclined? (Not to mention EU control of trade policy, competition, increasingly taxation, etc.)

[Hany Mustapha]

I think the Tory party is on the right track here, much as I'd love the situation to be different.

First: consider the constituency that Brown has assiduously built up through ensuring their absolute dependency - either through their (public sector) job in the first place or through 'benefits' such as tax credits. These folks will think long and hard before voting for the tap to be turned off.

Then consider the state of the UK economy when Stalin - no sorry - Mr Bean - no sorry - Mr Has Been is finally booted out. Not going to be any time soon either - he's going to hang on right to the limit - so two more years I'm sorry to foretell...

You simply can't reverse the (by then) 10 years of rampant growth in the public sector without causing mayhem. Unemployment will rise to economically and politically unacceptable levels, and the destruction in economic activity will be damaging both to those who (like me) have to generate the wealth in the first place, and to public revenues.

Finally, how are we going to pay even the interest, let along the capital, on the debt that Has Been has saddled us with? PFI means that we're already going to be paying for his folly for the next 40-50 years, but we have to make provision for paying off the debt he hasn't been able to hide away behind his smokescreens.

We also have a MASSIVE pension problem - both state pensions (which are funded out of current taxation) and public sector pensions which - yes, you guessed it - are also funded the same way. Already, 6p out of the 20p we pay in income tax goes to keeping former civil servants in knitting wool and slippers. When are we going to get a grip and decide to deal with this! Moving pensions to a funded system won't be cheap, but neither will it be optional!

Finally, folks, politics is nothing more that how we choose to organise ourselves as a society. Let's be a little more adult about how we approach party politics.