Close This site uses cookies. If you continue to use the site you agree to this. For more details please see our cookies policy.

Search

Type your text, and hit enter to search:

The Chancellor and his shadows

The Channel 4 debate between the three men who want to be Chancellor after the General Election contained no fireworks.  However, it did give us a sense of how the debate on the economy might pan out during the campaign.


The opening remarks in a debate can be revealing. We saw in George Osborne's statements in the first few minutes a Tory line on tax which David Cameron used in his response to the budget statement. That is that a Labour government means more taxation, with a suggestion this would risk the recovery. Until today, the Conservative alternative was to somehow cut spending faster and deeper than the bold plans already outlined by Alistair Darling in the budget (and in December's pre-budget report). Ahead of the televised head to head, George Osborne declared that a Conservative government would partially reverse plans to raise National Insurance contributions from April 2011. This would be paid for by further spending cuts and the Conservatives say they would cut an additional £6 billion more than Labour plans. As the Institute for Fiscal Studies comments, "By cutting spending next year and delivering the tax cut a year later the Conservative proposal would take additional spending power out of the economy for a year at a time at which the recovery is likely to be at its most fragile."

Furthermore, the Tories say they would cut the deficit faster, beginning this year. If what cuts they have identified (and there is little detail) are in effect mostly being spent on a tax cut, this means even more spending cuts are required. It is easy to forget that Labour will already be cutting discretionary government spending from April as the extra fiscal stimulus of the past year is unwound. Non-discretionary spending (welfare payments) is expected to rise as a result of the recession, but lower than expected unemployment and perhaps higher than expected growth might ease this. To cut even further than planned would be irresponsible.

The Tory claim that National Insurance increases in 2011 will affect jobs must be set against their aim to make harsh cuts this year. That would affect frontline services and increase public sector unemployment at a time when the private sector is only just getting up from the floor. Nevertheless, this line on tax from the Conservatives needs to be watched and its weaknesses exposed each time it is repeated.

There was a relatively high degree of consensus in the debate about how enormous is the task of managing the recovery and putting the public finances in a better shape. We heard a Conservative party shadow chancellor tell us that it was the job of government to deliver a fairer society. The problem is that the rhetoric has no support in Conservative policy.

Labour's message on creating jobs and on protecting the recovery came across clearly. Alistair Darling's appeal to his judgement carried weight. The chancellor has done a good job of maintaining confidence in management of the public finances without bringing recovery to a halt.

A member of the audience asked about the ‘travesty' of banks returning to their old ways after a massive taxpayer bailout. Darling was able to point to the bonus tax, the requirement for bonuses to be deferred and paid in shares, and even the 50p tax rate. He highlighted measures to boost bank lending. The other two had little to add to this and Osborne in particular said nothing specific on bonuses. However, banking does need structural reform or we will have another financial crisis. There is still much anger towards the banks and Labour's manifesto must tackle this head on and in clear terms.

So much for the substance, what about the style? This debate should have been a golden opportunity for a Conservative opposition spokesperson. Osborne may be relieved that he didn't obviously slip up but neither did he grasp the debate and display the gravitas we need in a chancellor. Vince Cable was clearly progressive and clearly independent. He exposed some of the contradictions in Conservative policy and was impressive against Osborne, but sometimes appeared a spectator. Alistair Darling acquitted himself well, displaying the confident grasp of economic policy the country expects of its chancellor, especially during these difficult times.

This article was first published on the Progress website on 30 March 2010.

Progress, 30 March 2010, 30/03/2010

 
Golden rules 
Labour is determined to show it cares about sound public finances. But to sustain its programme in government, it must show its vision for the future too.
The return of Mr Micawber: lessons of the Autumn Statement 
The scope for government economic policy has narrowed, but something has to change.
Government, gilts and growth: the Bank of England's dilemma
Government needs to say will reverse or postpone tax cuts if OBR says not sustainable. Bank of England should improve its communications.
Chaos and credibility
Why the Bank had to restore order.
Getting a grip - why Labour's own growth plans must be radical 
Labour has to challenge conventional wisdom to promote economic growth that benefits everyone - otherwise our public services will continue to deteriorate.
What will be the impact of the price cap on the economy? 
What matters most is our economy's productive potential. We don't usually get something for nothing.
Inflation and UK economic policy: some (obvious?) things to expect
A sketch of where we are following recent data. Some investment and ESG questions.
Inflation, the Bank, and the government 
The Bank of England's outlook in its August Monetary Policy Report was one of doom and gloom. It should ensure it is not captured by dated orthodoxy but ultimately government should act on cost of living crisis.