As George Osborne prepares to deliver his fourth big economic announcement since taking office – his autumn statement on November 29 – Britain’s chancellor knows his path to the despatch box has hardly been garlanded.
On one side are the critics who accuse him of killing the recovery at birth with his tax hikes and spending cuts, woefully misplaced austerity they say. Most such critics, it should be said, favour Labour’s approach – don’t cut the deficit or if you do, don’t cut it fast – which is easy to say if you have bequeathed a huge fiscal problem to your successors.
There are even some who urge a new fiscal stimulus, in spite of the fact that on official projections public borrowing will be more than £120 billion this year.
Osborne does not escape criticism, however, from those who back his austerity programme. They, and many are from within his own party, say he is not doing enough to stimulate growth by other means. The chancellor, in other words, lacks a growth strategy.
To be fair to him, he has not been blessed with luck. The Eurozone crisis – despite the rescue deal sketched out in late October – has hit growth in Britain’s main export market. High inflation, which his friends at the Bank of England failed to predict, has squeezed real incomes and prevented a recovery in spending at home. Only part of the growth disappointment, probably quite a small part, is due to his actions.
The biggest growth industry in Britain, however, is in alternative plans for the economy. If Plan A is the coalition’s programme, Plan B would abandon the spending cuts and perhaps implement the temporary VAT cut that appears to be the opposition’s big economic idea. There are many Plan B variations, some of which would actually involve higher taxes, but only for the well-off and for bankers.
These are not the only alternatives. There are also a series of ‘Plan A-plus’ suggestions doing the rounds, which would retain the cuts and the tax hikes but adopt other means of stimulating growth.
I think we can take it as read that we will not get a formal Plan B in the autumn statement. Reversing or delaying the fiscal tightening would bring down a series of blows on the chancellor’s head, including a thumbs-down from the Office for Budget Responsibility (which would say he would miss his deficit targets), a loss of Britain’s coveted AAA rating and the beginning of the end of Osborne’s Treasury career.
What we will see is some king of Plan A-plus, a growth strategy. It will include “credit easing” – boosting lending to small and medium-sized firms, as signalled by the chancellor at the Tory conference. The way this could work is by bundling (securitizing) these loans and financing them in the markets. But any such lending would still be via the banks, and the reaction is likely to be a re-run of the scepticism that has surrounded the government’s existing Project Merlin deal with the banks.