George Osborne has acquired the reputation of being a highly political chancellor. Often with admiration, those who observe him closely note that mention an idea, a policy, a dilemma and Osborne will outline the strategic implications, the likely political fallout and the historical precedents within half a second. How odd it is then that the Chancellor is often the main victim of his wily initiatives.
He was being highly political when, in opposition, he proposed setting up the Office for Budget Responsibility, an independent body to present the true state of the economy. It allowed Osborne to declare: “After Labour’s spin, there will be no more political interference with the facts and figures.” Perhaps this did him some good in opposition. In power the political consequences are by no means rosy.
Take the sequence that will unfold tomorrow. Shortly after his statement he will be upstaged by the mighty, authoritative figure of Robert Chote, head of the OBR. Chote will give a magisterial press conference in which he delivers his verdict on the state of the economy. He will be live on the rolling news channels, spelling out the gloom in front of largely reverential journalists. When Osborne makes his statement in the Commons similarly live on TV, he will be followed by Ed Balls, who, it is safe to predict, will not be reverential. Chote’s verdict will be the news story by late tomorrow afternoon, the independent voice, generously established by the Chancellor, stealing the Chancellor’s show.
The OBR is a noble innovation and one that I suspect Osborne partly regrets. The best it gets for him is to state: “The figures are terrible, but at least I made sure I had no control over how they were verified or presented.” Until now, it has always been part of the Chancellor’s art to frame a story about the economy. Tomorrow Chote will do the framing.
I suspect that the political fallout of Osborne’s sweeping reforms of financial services will follow a similar pattern. The Chancellor has given the Bank of England daunting, extensive regulatory powers, while scrapping the old Financial Services Authority set up by the last Labour government. Again, the theoretical political advantages for him are obvious. He blamed the Labour government for the epic financial crisis, and specifically for giving regulatory powers to the FSA.
In order to ram home Labour’s error in setting up a dodgy regulatory regime, Osborne has created a new set of powers for the Bank of England which means that the next Governor will have to be an epic superhuman. No wonder Mark Carney negotiated only a five-year term. He will need to return to Canada afterwards and lie down in a darkened room for a year or two.
Some of the Canadian newspapers have been rather less starry-eyed about Carney’s appointment than most of the British media that remains largely supportive of Osborne’s economic policies. Some have dared to point out that even Carney’s abilities will be tested by the state of the British economy. His regulatory responsibilities are vast and the euphoric UK commentators will turn on him at some point and, as they do so, will target the Chancellor, too. The political consequences of blaming the regulatory regime of the previous government will lead to another trap for the supposedly politically nimble Chancellor.
More immediately, Osborne is the main victim of his decision after the election to attempt a time frame for deficit reduction that coincided with the electoral cycle. In those heady summer days more than two years ago, Osborne hoped he would be able to announce by 2015 a job well done in getting on top of Britain’s debts, together with an expansionary Budget that would lead at last to an overall election victory for the Conservatives.
Facing the cliff
The political objective has not gone to plan, as Balls kindly warned him it would not from the beginning. Probably, the Chancellor will have to admit tomorrow that one of his prized fiscal rules – that net debt will be falling as a proportion of GDP by the end of the parliament – will not be met. Politically, there is no point in setting rules unless there is a very high chance they can be met.
It is not at all clear where the Chancellor thought the economic growth would come from when he announced his rules in 2010. Unlike the 1980s in the UK, there was no booming Europe on his doorstep. Unlike Canada in the 1990s, there was no soaring US economy nearby. Yet Osborne had both those models in mind partly with the hope of reaping similar electoral rewards.
On Wednesday the Chancellor faces the consequences of his political agility. The mighty Chote will give his god-like verdict and will confirm implicitly that the political cycle diverges dramatically from the economic one. Perhaps Osborne is not a titanic political calculator and is acting out of principled conviction alone, leading his party to the edge of a cliff for the sake of the country. This theory would stand up more if the country were moving away from the cliff’s edge.