George Osborne defines his anti-recession policy in 78 words

On Monday we urged George Osborne to make a clear statement of Tory macroeconomic policy for the recession:

"What the Conservative Party appears to be saying is that only by restoring discipline to the public finances will the Bank of England have the room to make large and sustainable cuts in interest rates.  The Tory economic team has decided that further borrowing will make it harder for the Bank's monetary policy committee to make those cuts.  It is not the policy that ConHome would have chosen (we are attracted to the Lilico plan of large but time-limited tax reliefs) but it is a credible policy and needs to be explained."

The Shadow Chancellor has done exactly that today in a robust article for The Telegraph.  Read the whole piece here but there are 78 words that really matter:

“The Government should do nothing that makes it more difficult for the Bank of England to cut interest rates. It must be for the independent MPC to make its judgment, but it is a statement of fact that, with interest rates still at 4.5%, there is plenty of scope to stimulate demand with lower rates. A spending splurge, funded by extra borrowing over and above what the recession is already forcing on us will make that less likely.”

Mr Osborne will no doubt roll out more measures that will help families and businesses cope with the recession - building on existing commitments to freeze council tax and introduce a VAT holiday for small firms - but the task of beating the recession has been given to Mervyn King and the Monetary Policy Committee.  There will be no big Keynesian tax reliefs or spending increases from the Conservatives.

Comments

[Supply sider]

If Brown now announces large tax reliefs for business, limited say for two years, are we going to oppose them? This is a dangerous policy from George Osborne.

[Edward Huxley]

Does anyone take any notice of what Mr. Osborne says?

[Richard Ireland]

I fully expect that in response to the first (planted) question IN PMQ's Mr.Brown will steal George Osborne's thunder and announce another co- ordinated reduction in interest rates. This is pure politics - he shouldn't do it. It is for the Governor of an independant Bank of England to decide and make these announcements.

[James Burdett]

Edward Huxley - The government clearly do, and they don't like what they hear. Hence the co-ordinated attempt to destabilise him last week.

[Paul Kennedy]

Could somebody explain exactly what they mean by a "VAT holiday".

If as I expect it is a matter of VAT cashflow then small businesses, up to £1.35 million sales can register for the Cash accounting VAT scheme, whereby you do not need to pay VAT until your customer has paid you. If your customer never pays you, you never have to pay the VAT.

[Paul Kennedy]

It is all well and good reducing interest rates, but what happens to the millions of savers who rely on the income from those savings, or is it the hope that they will be forced to stimulate the economy by spending their savings....thereby having nothing put by for the next "rainy day".

[DCMX]

The foppish image of George Osborne in shooting wear (Daily Mail) will do more damage than this article will do good.

http://www.dailymail.co.uk/news/article-1081357/Shotguns-dawn-Osborne-Rothschild-days-sights.html

[Norm Brainer]

The foppish image of George Osborne in shooting wear (Daily Mail) will do more damage than this article will do good.

How on earth will that do harm? Anyone who treats people differently because of their background already know how he grew up.
Most people will see it as a positive (ie. got the best education and isn't in awe of money) or just not care.

[Edward Huxley]

Sorry James Burdett, Mr. Osborne disabled himself by his stupid actions and he has become a figure of fun.

Re VAT, surely we cannot alter that without permission from Brussels?

[Malcolm Dunn]

'There will be no Keynesian tax reliefs or spending increases from the Conservatives'. Good.
I'm not sure that putting pressure on the BOE to cut interest rates against their better judgement is good policy though. Osborne hasn't done that yet but I hope he won't be tempted.

[London Tory]

This message would sound a lot better [and be taken a lot more seriously] if Kenneth Clarke or Michael Fallon or John Redwood were Shadow Chancellor.

Osborne simply does not look, or act the part.

[ChrisD]

Edward Huxley, Osborne has not become a figure of fun, that's UKIP's role these days.

As for the EU rules on VAT, well they tore up their rules on banking a couple of weeks ago.
If this policy is deemed to be effective, I expect the EU to move its backside pretty fast in an effort to implement it.

[James Maskell]

When they said 78 words I assumed that it would be 78 words rather than the first 19 that was the anti-recession policy. The rest is filler. The policy announcement of a "responsible fiscal framework"...right, what does that mean in practice. Adjustments to taxes on a scale which will do very little indeed appears to be the current Tory policy. Also, why would he announce anything else? Hes not going to come out and say he proposes an irresponsible fiscal framework, is he?

Also looking at the article, he says the idea of an Office for Budget Respoinsibility was hailed...I recall it was slammed by the vast majority of posters here.

Osborne is wasted. Lets get a heavyweight in there, or at least get Osborne some heavyweight advisers. This guys a joke.

[ChrisD]

London Tory, give it a rest, the same negative rubbish daily gets very boring.
Some people didn't think that Maggie Thatcher looked the part for leader of the Conservative party never mind PM. And that was just the Tory stuffed shirts!

[michael m]

We do not want 78 words- just 7or 8 that the ordinary voter can understand and believe about what our policy is- and that message to be repeated endlessly at every media opportunity.
By the way, where have the other Shadow Ministers been since the recess? Have they returned from leave?

[Northern Tory]

Let's hope the views on here are not representative of the electorate or Osborne is going to have a real uphill battle getting his voice heard....

Good statement but why has it taken weeks??

[pp]

Good to see Georges new notariety being put to good use - ride that wave.

Great clear policy -- labour claim that the BoE is independant and then leave their finger prints over eveything they do, already having moved some of the most important things they could do to the failed FSA.

Good stuff setting principal, in strict contrast to Browns micro-management of everything with no clear direction.

Except I don't really get the 'vat holiday' thing either what is it?

I have systems in place for VAT that work (and avoid the nasty fines that can be levied for late payment etc) - to change those would be 'expensive' in time and there is the risk of getting it wrong and getting fined etc... dealing with the 'state' is the nastest part of the running a business, and a distraction from /creating/ wealth - I wouldn't want to mess with it (expecially temporarily) unless there was a very large financial advantage.

[Hayek Fan]

Cut direct taxes for individuals and businesses, cut public spending by freezing public sector pay.

15 words.

[London Tory]

@ Chris D

Your somewhat naive cheerleading of Osborne flys in the face of the evidence that he has damaged our Party in recent weeks.

Any comparison with Thatcher pre 79 is risible. Not sure how old you are, but M.T was steeped in economic theory and surrounded by eminent economists [a sign of her own intellectual self confidence]. Osborne is not even in the same profession as people like Sir Keith Joseph, Biffen, Howe and Ridley.

Get real, please.

[David_at_Home]

Whatever is meant by a "VAT Holiday", George Osborne really should get his head round the uncomfortable fact that it is not permitted as long as we remain in the EU. There are many reasons why we should seek to leave the EU but, in the short term, a reduction in Employers’ NI (which is a tax on employment regardless of profits) would give the best short term relief to struggling employers and this tax remains under the control of the British Government.

[Old Hack]

Firstly, his critique is okay. Nothing spectacular, but okay.

But GO is still politically discredited and his message will be seen through the prism of his lack of political credibility.

I also find Mr Osborne's call for the Government to do nothing that makes it harder to lower interest rates a tad shallow. Even if Darling had an epiphany having read a cocktail of Friedman, Schumpeter and Laffer, he would still find it very difficult to avoid influencing interest rate decisions. The Treasury still has to operate in the short term.

[Tony Makara]

It is true that we need rate cuts, but the way our economy is structured we cannot cut rates in isolation without weaking our currency, inviting speculation, and importing food inflation into our country.

The cost of food staples is already running at approx 15%, and with 40% of our food imported today we must watch that we don't have a problem with high street inflation, the very inflation that hits the poorest people in our society.

We can only cut rates in unison with the EU and others, that way current exchange values will be maintained and the threat of imported inflation will be nullified. However in the long-run our aim has to be to rebalance the economy so that we are less depdendent on imports and less dependent on the higher interest rates needed to keep imports cheap.

[dogface]

How about better incentives for savers? Brown spoiled the PEP and Tessa structure, and I no longer bother with those. But I'd appreciate paying less tax on bank interest, and banks could do with more retail savings.

[Raj]

cut public spending by freezing public sector pay.

15 words.

I've got 4 words for you.

"Strikes and sick leave"

Many people in the public sector are already suffering from inflation, even if that's going to come down. Wage increases have already been limited - if they're frozen it will hurt the wrong people. They would probably then retaliate and cause grief that a new administration wouldn't need.

It's comforting for many people to think that all civil servants are overpaid and undeserving, but the truth couldn't be more different. If there's any fat to cut off on salaries it's at the top levels. At the bottom pay freezes aren't the answer - reducing the number of staff employed is. However for central government there are already big cuts going ahead, so it's difficult to see where there the scope is for more cuts.

If you really want to reform the civil service you need to change the culture about hiring and firing staff to ensure that people aren't kept on because it's "easier". There are no quick fixes there and it's not sexy - but it's what is needed.

[support the strivers]

what on earth does the second sentence mean? it doesn't make any sense at all as drafted.

[Tam Large]

"Let's hope the views on here are not representative of the electorate or Osborne is going to have a real uphill battle getting his voice heard...."

What voice? Lightweight little Piglet is just twittering, trying to say a little in a lot of words he seems not to understand. No policy, no credibility. To see him interviewed on TV is to cringe... This Shallow Chancellor needs ditching.

Contrast this with UKIP, whose Finance Spokesman is Tim Congdon, one of the world's most respected economists...

[Mark Fulford]

The government cannot spend on infrastructure to get out of this recession because money spent in the British economy doesn’t stay here and multiply its benefit in a virtuous spending circle. Our economy leaks like mad, a large percentage of our spending going abroad in a fairly straight line.

The Conservative plan to beat recession should be to do everything we can to attract money to Britain from overseas. My top four announcements would be

- a predatory corporation tax regime that will bring foreign business and investment to our shores,
- incentives for investment in creative industries (i.e. businesses which convert raw home talent into raw external cash),
- fast track approval and incentives for investment in renewable energy schemes (e.g. tidal barrages),
- zero duty on imported raw materials (to add value our manufacturers must be able to buy their raw materials competitively).

[Nigel]

"Contrast this with UKIP, whose Finance Spokesman is Tim Congdon, one of the world's most respected economists... "

UKIP...hahahahahah...who are they? Who is he? The words "respected" and "UKIP" are about as synonomous as "BNP" and "pleasant".

[john]

Northern Tory 09.18
"Let's hope the viewson here are not representative of the electorate....."

They certainly aren't. Most people have got better things to do than sitting all day at their computers in their pyjamas whingeing about George Osborne.

[David_at_Home]

[email protected],

Is that really the best you can do?

Do you truly believe that George Osborne’s views carry more weight than those of Professor Congdon?

Or perhaps you don’t know.

[ChrisD]

"Your somewhat naive cheerleading of Osborne flys in the face of the evidence that he has damaged our Party in recent weeks."

Sorry London Tory, I actually bother to follow politics and in particular the Conservative party very closely. And alas, your other attempt at a put down by questioning my age won't wash either. I am old enough to remember the Thatcher years very well.
I am just lucky that I don't rely on the negative cr*p posted by you and few others on here daily as my only source of information on politics.

And more too the point, Osborne has delivered a valuable contribution to the present Conservative party which has seen it consistently ahead of Labour in the polls for the first time in years.
Mrs Thatcher had a very rough ride within the party when she was elected as its leader, luckily she didn't have the London Tories of this world posting negatively about her day in and day out what ever she did.

[Edward Huxley]

As I have made clear, I am not an Osborne supporter. Neither am I a Mail reader, but have just looked up the paper online and have seen the article about him taking part in a shoot in 1992, with photograph. As a retired keen shooter myself I can see nothing to sneer about, which is what the article set out to do. That`s 16 years ago, for God`s sake.

I do not not envy Mr. Osborne his money and do not doubt his intelligence. Sadly, however, he seems to lack the one essential quality to be a government minister- judgment. In 16 year`s time maybe...

Same thing with David Cameron. I have nothing against him going to Eton, it is a great school and has turned out many famous men. Sadly he is not one of them and he and too many others at the top of the party know no life outside politics.

That cheap jibe about UKIP supporters will come back to haunt him.

Fair comments, I hope.

[James Kershaw]

This is not a policy. It is a policy to not have a policy. Get real.

[Jake]

Points.
1. All the vast extra government spending so far has been of the bank rescue variety and is not at all of the sort of Keynesian investment in public works which were the bedrock of Keynes plan for the 1930's. The economy is still in ITU and hasn't yet been discharged to a recovery ward.

Nevertheless Brown is carefully confusing the issue and trying to give the impression that "borrow and spend" is already going to public works FDR style.

2.Mark Fulford is spot on in noting the lack of a virtuous spending circle in the latter day British economy. This is not the 1930's -50's when extra government spending made a prolonged difference. Nowadays it mainly just goes straight abroad via imports.

3 "Borrow and spend" relies on a willing debt lending market. It implies higher interest rates than otherwise. It also relies on government credibility. There comes a point where the markets won't lend. Brown is going to regret using that phrase.

4. After the debt markets cease being compliant Brown is going to have to print money. The extent to which this already being done is unclear. It might be that it will be rolled out as part of a coordinated international governmental printing scheme.

5.Despite the above the world economy will still deflate. Low interest rates will be part of that.
What happens from here onwards is not easily predictable. It is no use criticising Mr Osborne for not knowing the future. This situation demands a calm and flexible approach.

[Louise]

The only salient point Osborne is able to make is to cut interest rates, which is out of his control anyway. Having read the article and the blog comments online, it's not just London Tory who is upset with Osborne. Quite a number of people on the online blog have made intelligent comments (one step up from the illiterate rubbish that normally gets posted there) and not one supports Osborne directly.

I think we need some sort of direct policy now for dealing with things. Although the situation is still fluctuating, the least we can outline is to say what we will do instead of Keynesian spending. We seemed to have a lot of good ideas last time round, perhaps if we had a spokesman who was more grounded in reality and allowed to put his case forward properly then perhaps we might stand a chance of pulling "the zone" out from under Labour's feet again. Although not on here, they seem to be winning some kind of argument elsewhere, and Osborne has damaged the party in other ways recently as well and should at least be allowed to concentrate on economic policy. Otherwise we look like dilletantes where we need professionals.

[ChrisD]

Louise, I disagree. I hope that Cameron's team don't get bounced into providing an alternative economic strategy for this moment in time, simple to give the political lobby a contrast to Brown and Darling.
As Danny Finkelstein also pointed out, "instead of trying to find non-existent alternatives for the next 18 months, the Tories should say they intend to concentrate on policy for reconstruction after an election."

Its the message that voters will want to hear, and they might also remember it. It will also stop the political lobby from holding the Conservatives as hostages to fortune during a GE campaign.
Because lets face it, the media will not report it right now in great detail, the public won't remember it, but come the GE campaign its all the media will harp on about.
Thank god the leadership have learnt the lessons some of us have not over the last 11 years.

Don't worry about the comments on the Telegraph blog, I would have bet a fiver they would all be negative.

[resident leftie]

.Mark Fulford is spot on in noting the lack of a virtuous spending circle in the latter day British economy. This is not the 1930's -50's when extra government spending made a prolonged difference. Nowadays it mainly just goes straight abroad via imports.

It doesn't go abroad if it's spent on infrastructure and establishing new technologies. For example, a Bristol Channel hydro station, much higher standards for energy efficiency and renewables for government buildings.

[John Bell]

I hope the people constantly writing/whinging on these pages are also working out on the streets to get their local Conservative candidate elected? Less talk more action perhaps?

[Louise]

Chris - Finkelstein needs to say that again to Osborne and Cameron because they haven't noticed yet - most of what they have said has been trying to tell the government or the Bank of England what to do. Notwithstanding that 18 months could be a long time in economics, they need to make their plans clear now so I have a chance to read them. Most of what they say falls on stony ground because it is geared towards saying what the government should be doing and not enough thinking goes on (where it should be going on, not on John Redwood's blog) about a direction in power and beyond.

@John Bell - I did that 24/7 last time round (gave up my job in the process because I hoped we would win - BIG mistake there but never mind) but I'm not going to help until the Tories get a leadership worthy of the name. Sorry but government is not just a sum of its parliamentary parts - it's a whole package together that gets people elected. Elections aren't just for polling day, they are for five years afterwards. Why should I help the Conservatives get elected when I don't know what they would do in office?

[David_at_Home]

"I hope the people constantly writing/whinging on these pages are also working out on the streets to get their local Conservative candidate elected? "

In my case, it is for my local UKIP candidate because the policies, such as they are, of the present day Conservative Party are virtually indistinguishable from those of the present day New Labour Party and both are largely directed (or at least constrained) by the EU Commission.

I wish it were otherwise!

[pp]

Those whittering on about not having direct control of interest rates are just showing how brainwashed you have been by a decade of socialist stupidity.

Labour like to take issues, produce a metric (measure/target) for them and then aim to move the measure/meet the target, but all without checking that the metric remains still valid.

i.e. Improving peoples education - measured by the number of people attending university. This was a valid measure of past performance, but once the measure was in place and targets set, it was met by lowering the standards required to get in to university... So meeting the 'target' has no relation to the objective that the target was set to measure...

Using metrics as proxies for genuine issues is not safe, they need to be closely monitored.

Just as george outlines regarding interest rates -- they are substantially a measure of the economy -- the governments actions on the economy must /have the effect/ of changing the interest rates in the right direction, ane the government should /do nothing/ that would have the effect of pushing them in the opposite direction.

Labour are going to be out soon, and people will once again need to start using their brains -- not fall into the facile way of thinking that socialists use to lead the ignorant, lazy and stupid along their misguided path.

[Louise]

@pp - they are still in direct control of the Bank of England though. The government has other ways of controlling or manipulating the economy, but not that particular control. If George Osborne wanted to make a proper statement of his aims, he could start by outlining things which are directly within his control and would ease the BoE in the right direction.

Labour will not be out soon unless the Tories pull their fingers out and give people a concrete reason to vote for them rather than bleat about something that is not under their control. As much as I am a Tory now, I have been on both sides of the fence and was wooed over by Michael Howard looking and sounding like a proper Prime Minister during the first half of 2004. I can so very easily go back and it is looking tempting; the only thing that keeps me in the party is the feeling I first felt on joining that it was my natural home rather than just my head saying Vote Tory to me. I am under no illusions that the current leadership have to work to get my active support rather than just my vote in safe Tory Wokingham. So far they are not doing very well - and they have had 3 years to convince me.

[dickie the sheetie]

The VAT 'holiday' is a bit of a red herring. What would help far more would be to raise the VAT registration threshold from the current £67K turnover to £120K or even £150K. For businesses operating under this level of turnover, employing 2 or 3 people, VAT is no more than a stealth payroll tax: you charge VAT on all your sales, but can only reclaim it on materials and services, not labour. So even if you have a bad quarter and make a loss you can still end up with a hefty VAT bill. For many of these small companies I suspect the amounts of VAT collected by the Govt are barely worth the admin cost - and with around 70% of small businesses failing in the first year, leaving the smallest businesses out of VAT altogether will stop HMCE becoming entangled in thousands of bankruptcy proceedings each year. More then entangled in fact - HMCE has a reputation for being one of the most aggressive creditors when it comes to pushing firms into receivership, and small firms might stand a better chance of survival if they didn't have VAT to worry about.

IIRC the registration threshold is about the only aspect of VAT that we can control at a national level - all the rest is EU mandated. So there's nothing to stop it happening.

[pp]

I have systems in place, so don't worry about the detail on a day to day basis - (running a business doesn't make money it is a significant cost - DOING business is what makes money).

But VAT isn't much of an issue - we charge 17.5%, pocket a chunk of it and pass the rest on the tax man - it is just a fundraiser for the government rather than meaning anything (just like NI still pretending to be different from income tax).

One of the things I dislike most (and I know others who agree) is having to pay my tax IN ADVANCE -- start of the year have to guess what we will earn and pay the tax up front (yes, before we have earnt anything!) - at the end of the year, if we got it wrong and didn't pay enough then we pay interest... if we paid too much we get it back with a bit of interest at a /lower/ rate then we would have paid!.

[Mark Fulford]

VAT is no more than a stealth payroll tax...

Dickie, I’m sorry to say that Value Added Tax is precisely that: a tax on added value. If you raise the threshold to £150K, one of the effects is to give smaller businesses a built-in competitive advantage of up to 17.5% (depending on how much value they’re adding – i.e. the difference between their sale and purchase costs). If your business is less than £150K, clearly you’d enjoy that. But if you were at £149K and looking to employ your fourth person…?

Having said that, I do agree that the costs of administering VAT (both direct and indirect costs, such as lost opportunities) and the severe fines for error put a huge burden and undue stress on small businesses. Unlike the juggernaut that prosecutes us, VAT is not our only job.

[A. Headhunter]

Osborne says we need change: "Any spare change, Guv?"
At this rate we'll all be selling the 'Big Issue' or fighting for pitches outside the cash machines in the High Street.
How about a 78 word analysis of Brown's failure and an 87 word alternative? Reducing interest rates is not enough.
When Brown inherited the keys to the Treasury the economy was in the best shape it had been in since 1914. Today it is in the worst shape it has been in since 1945. It has taken Brown 11 years to achieve what it took two World Wars, two Coalition Governements and the 1930's slump, over a period of 31 years, to achieve. That is his place in history. There is your open goal, George. When you find the balls start kicking.