The changing narrative of Chancellor George Osborne
The Chancellor was kind enough to spend 20 minutes talking with me on the Eurostar back from the Brussels European finance meetings. I detect a politician settling into his job, keen to mark out a medium term vision for Britain that goes beyond deficit reduction.
“We’re trying to make sure the British economy is not a one-trick pony, where all our bets are placed on the success of the City of London, important as that is,” he told me. Mr Osborne spoke at length about what Britain might learn from the booming German economy. He praised Spain for taking tough austerity action that has allowed it to “decouple” from Portugal and Greece. I pointed to the flat growth seen over the last six months, he almost conceded that, but pointed to EC forecasts predicting Britain’s growth is to exceed that even of Germany.
“We are getting on top of the problems we inherited and restructuring the British economy so that exports and manufacturing…we are getting on top of our deficit, which is absolutely fundamental to our economic stability”. He added: “Not only has Britain moved off negative outlook for its credit rating: one of the very few countries in the world that’s moving up the credit rating scale rather than down the credit rating scale at the moment.
But our interest rates are close to Germany’s, even though our budget deficit is higher than Portugal’s – and that is a measure of the economic success we’ve had,” he said. I pushed him on how on earth it could be that the Government claimed that Labour had left Britain on the brink of bankruptcy (the coalition argument last year) yet now the argument is that Labour would have made seven out of eight of the cuts now announced by the Government. How can both be true? “What we inherited from Labour was a completely incredible commitment to reduce the budget deficit,” the Chancellor told me.
This is a subtly different argument to suggesting that they had no plans. It still strikes me that the Government is now adopting an argument, a “narrative” if you like, which is almost the polar opposite to the one used a year ago. Mr Osborne’s explanation is that Labour did have some plans, but they weren’t credible. Hardly the difference between bankruptcy and AAA. On inflation, the Merv and Ozzie show continues.
He buys into the Bank of England line. He said Mervyn King’s letter was “convincing” in its assessment that inflation was set to fall in the medium term. “If you look at the data…there are some factors now which are pushing inflation down. For example, the pressure on clothing prices, which are coming down. I think the Governor and the MPC are doing the right thing,” he said. The Governor put the Chancellor’s VAT rise first in the reasons for above target inflation. Is that not Mr Osborne’s fault? “I would say, of course, that the VAT rise is an essential part of dealing with the budget deficit…The Bank Governor has been a very vocal supporter of the efforts that the Government in Britain has taken to try and bring the budget deficit under control.
In terms of its impact on inflation, the Bank Governor is very clear that the VAT rise has a temporary and diminishing impact on inflation”. OK that’s enough of Mr Osborne for one blog post. I’ll go through what he said re the euro: that finance ministers are “on top of the crisis”, the IMF and Gordon Brown “no contact either directly or indirectly” on IMF job tomorrow.