George Osborne: Our planet - boom or bust?

It is the ultimate irony that Gordon Brown is hosting the G20 summit when our economy, mired in debt, is the worst-placed of all to weather the recession, says the shadow Chancellor of the Exchequer

Share
Related Topics

There are defining moments in politics when the argument shifts decisively, old dividing lines are demolished and a new equilibrium emerges. This past week I think we may have just seen one in Britain. All of Gordon Brown's central arguments on the economy have now collapsed, and the timing could not be worse. As the G20 summit approaches, the Government's economic policy is now discredited and rudderless.

The first of those arguments is that the British economy was sound until it was hit by a banking crisis that came from America. It is why Mr Brown says he "has nothing to apologise for". The problem is that even that Americans don't seem to buy it. For a start, Paul Volcker, President Obama's senior economic policy adviser, said a few days ago that the banking crisis "is probably worse in the UK".

The truth is that the banking crisis holds up a mirror to our wider economy and reflects the fundamental imbalances allowed to develop throughout it for a decade. Our households, our businesses, the Government, and our whole country became unsustainably dependent on debt.

Of course, the same was true in the US. President Obama's Treasury Secretary, Tim Geithner, said last week that he too sees the problem of debt as a root cause: "No crisis like this has a simple or single cause, but as a nation we borrowed too much and let our financial system take on irresponsible levels of risk." How refreshing it would be to hear such a frank assessment from Alistair Darling's lips.

But we borrowed even more than America. Our households became more indebted, our banks were more highly leveraged, and our housing bubble was bigger. So as David Cameron wrote in the days after the run on Northern Rock: "Though the current crisis may have had its trigger in the US, over the past decade the gun has been loaded at home."

That leads to the second of Gordon Brown's arguments that has collapsed this week – the idea that Britain is best placed to weather the recession. As the man who ran economic policy for the past 12 years, it's obvious why he might want people to believe that, but it doesn't stand up to the facts. Last week we learned that our economy shrank faster than previously thought in the second half of last year, and by more than the US economy. That's why the IMF is forecasting that we will have one of the deepest recessions of any major economy and the OECD says we will have the largest rise in unemployment. We are set to have the highest budget deficit of any G20 country next year, according to the IMF, leaving us least able to take the actions other countries are taking to help families and businesses in the recession.

The dreadful state of our public finances is at the root of the last week's third and most significant development. The Governor of the Bank of England's unprecedented warning that a further significant fiscal stimulus is unaffordable has simultaneously destroyed Gordon Brown's economic and political strategy, and vindicated the decision we Conservatives have taken on how to tackle the recession.

I challenged Alistair Darling twice in Parliament on whether he agreed with Mervyn King's analysis and he twice refused to answer the question. He was not even able to express his full confidence in the Bank of England Governor. That shows our economic policy-making machinery has become dysfunctional.

The Government should now follow the advice we Conservatives have consistently offered. I argued almost six months ago in a speech to the London School of Economics that, given the poor state of our public finances, there were limits to how much borrowing the markets would tolerate, and that a fiscal stimulus would risk undermining confidence, and increasing the long-term interest rates that the Government has to pay on its debt – precisely the opposite of what the economy needs. Instead, we should "let monetary policy do the heavy lifting in stimulating demand".

That's why for months we have been calling for a big, bold and simple national loan-guarantee scheme. That would get credit flowing, bring down the interest rates faced by businesses, and help stem the tide of job losses that are dragging the economy down yet further. After first attacking our proposal, the Government unveiled a smaller version to much fanfare in January. But two months later not a single business has received assistance under the scheme, and not a single job has been saved.

We have also proposed targeted and funded tax measures to help save our small businesses and firms that take on the unemployed. Labour MPs now queue up with retailers to denounce the VAT cut as pointless and expensive, while this week we will observe a bitter irony: a British Prime Minister will host the leaders of the world's largest economies when the economy he ran for a decade is the worst-placed of all of them to weather the recession, and when his economic strategy has collapsed just as it was confronted with a reality check.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Subsea Cables Installation Project Manager

£50000 - £60000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Subsea Cables Installation Project Manager

£50000 - £60000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Head of Offshore Operations & Interfaces

£60000 - £70000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Offshore Engineering Design Manager

£50000 - £60000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Day In a Page

Abd Mubin Rahim of Malaysia falls to the floor after an unsuccessful lift during the Men's Weightlifting  

Usain Bolt was right about the Commonwealth Games, but we shouldn't blame the organisers

Teddy Cutler
Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices