Has Boris Johnson joined the austerity sceptics? George Osborne holds firm for now

26th January 2013

He may have a famously thick skin, but George Osborne's economic plans have been assailed from several directions this week. Being accosted by a pesky Greenpeace activist in the loo of a Davos restaurant is probably the least of his worries.

More problematical are comments from at least three other sources. Deputy Prime Minister Nick Clegg now says he believes that the Coalition began cutting capital spending too fast as the BBC reports here. It is important to note that Clegg’s change of heart is arguably his second. In the last election, it was certainly arguable that the Liberal Democrats campaigned on a slower pace of cuts than they finally embraced, though in truth all three parties’ programmes were quite sketchy on detail. However the Liberal Democrats were seen to be aligned more with Labour, until they ‘looked at the books’ and signed up to more swingeing cuts.

Clegg does manage a dig at the Opposition. He says that both Conservatives and Liberal Democrats made a mistake in accepting cuts to capital spending that had already been planned in by the last Labour Chancellor Alistair Darling.

Here is the relevant quote: “I think we comforted ourselves at the time that it was actually no more than what former Chancellor Alistair Darling spelt out anyway, so in a sense everybody was predicting a significant drop off in capital investment. But I think we've all realised that you actually need, in order to foster a recovery, to try and mobilise as much public and private capital into infrastructure as possible."

We should note that Number Ten does not agree and points to new infrastructure spending of £20bn announced in the last budget. 

Even more concerning perhaps for Mr Osborne is the criticism from the International Monetary Fund’s chief economist Olivier Blanchard who said a slowed fiscal consolidation may well be appropriate.

The IMF has cut the UK’ growth forecast for the second time in just four months to one per cent for this year. This is the strongest message sent by the IMF although it has been warming to theme in a number of its recent pronouncements.

Osborne, interviewed at Davos, and reported in the Telegraph, has rejected the IMF view and says he is staying with ‘his credible deficit reduction plan'.

Of course, also present at the same Davos restaurant was London mayor Boris Johnson, but the London mayor does not seem to be yodelling from the same hymn sheet either. Johnson makes the front page of the  Guardian suggesting that the ‘hair-shirt Stafford Cripps agenda is not the way to get Britain moving again’.

Cunningly, Johnson, the king over the water (that water being the River Thames) attacks Labour’s most famous austerity Chancellor Sir Stafford Cripps and seems more concerned with the language than the numbers, but it still makes for a significant departure.

On the Spectator, Fraser Nelson takes a different view. He feels Johnson if not misquoted has definitely been misinterpreted. (We rather suspect the Mayor knows exactly what he was saying and how it could be viewed in several different lights).

Anyway if Osborne is secretly looking for a detailed alternative policy, he need look no further than the views of Adam Posen, a former member of the Bank of England Monetary Policy Committee.

Posen, writing on the website of the Peterson Institute for International Economics where he is now President, lambasts the Government for its current direction. But we think the key link is to an article in Prospect Magazine written in December where he outlines an alternative programme in some detail.  

Posen wants a fiscal stimulus including investment tax credits to non-financial businesses, better sources of credit to small businesses including reforms to corporate bond regulations and improved venture capital markets, more competition in retail banking, a state backed bank for lending to small business, and increased British public investment.

For now, Osborne is holding the line. But for how long? And if Plan A really does change to Plan B, can this Chancellor hold on to Number 11?

 

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