Leading article: There is nothing wise about economic inflexibility

One politician's pride cannot be allowed to drive policy; not with so many jobs at stake

Share
Related Topics

The voices of warning are multiplying. At the World Economic Forum in Davos last week the respected financier George Soros predicted that George Osborne's ambitious deficit-reduction plan would prove unsustainable. This was followed by some hints from Larry Summers – who until recently was Barack Obama's chief economic adviser – that withdrawing demand from a still weak economy was unwise.

The National Institute for Economic and Social Research (NIESR) went further this week, directly urging the Chancellor to slow the scheduled pace of cuts. And yesterday the Institute for Fiscal Studies (IFS) warned that the planned fiscal retrenchment would be "formidably hard to deliver".

True, the IFS, unlike the NIESR, does not recommend that Mr Osborne change his fiscal plans. But it does argue that the risks to the economy are greater than Mr Osborne admits. And the IFS's director, Carl Emmerson, yesterday suggested that the Chancellor should prepare a "Plan B" in the event that the economy does not rebound as the Government hopes it will.

The Chancellor regards these as siren voices that would lure him on to the rocks of destruction. At Davos last week he argued that that if he were to deviate, or show any signs of deviating, from the course outlined in last year's Budget, investors in British debt would panic and send interest rates soaring.

But he should listen to the warnings. For one thing, they do not come from the political left, but from economic technocrats. For another, their fears are well founded. Mr Osborne has cited support from the Bank of England and the International Monetary Fund for his existing approach. But the growth figures for the final quarter of 2010, even allowing for the weather disruption, suggest an ominous weakness in the British economy. Manufacturing is recovering well. But consumer confidence has fallen drastically. And since the cuts have not yet started in earnest, there is every reason to be pessimistic about the recovery. Even if one views things optimistically, it would be imprudent for Mr Osborne not to take out an insurance policy, in the form of a commitment to loosen fiscal policy if it appears that cuts and tax rises are inflicting an intolerable squeeze on growth.

Mr Osborne says foreign investors in British government debt want to be confident that the Government will do what is necessary to reduce borrowing. Indeed they do. But if growth does not rebound strongly, the deficit will not come down and borrowing will remain high. Why should investors be impressed by inflexibility from Mr Osborne if that very inflexibility threatens to push his stated objective further away?

The Chancellor's fears about Britain's leeway for flexibility are exaggerated. The IFS emphasised yesterday just how drastic Mr Osborne's fiscal consolidation is by international standards. Only Greece is implementing quicker and deeper cuts to its structural deficit. Britain is not Greece. Our sovereign credit is much more secure. There is no good reason to believe that investors would panic if the Government were to announce a more flexible approach.

Of course, there is another reason why Mr Osborne would be loath to alter his plans. Any change of approach would be a personal humiliation. Labour's new shadow Chancellor, Ed Balls, would ruthlessly exploit this reversal. But one politician's pride cannot be allowed to drive policy; not with hundreds of thousands of jobs and livelihoods at stake. It is now increasingly clear that Mr Osborne's emergency Budget last June was a reckless, indeed hubristic, document. The Chancellor will deliver his second Budget next month. He should swallow his pride and announce a contingency plan.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Ashdown Group: Data Warehouse & Business Intelligence Co-ordinator

£35000 per annum: Ashdown Group: Required skills include SQL querying, SSRS, u...

Ashdown Group: C#.Net Developer - C#, ASP.Net, PHP, HTML, JavaScript, CSS

£30000 - £35000 per annum: Ashdown Group: C#.Net Developer - C#, ASP.Net, HTML...

Argyll Scott International: Senior Business Analyst- Insurance

Negotiable: Argyll Scott International: Senior Business Analyst - Insurance ...

Recruitment Genius: Property Manager

£25000 - £29000 per annum: Recruitment Genius: This independent, growing Sales...

Day In a Page

Read Next
 

i Editor's Letter: The demise of a Sixties monster

Oliver Duff Oliver Duff
A CCTV camera is seen in front of a large poster opposite in central London  

Home Office is creating more powers to turn everyone into suspects – but leave us no safer

Shami Chakrabarti
Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
There's a Good Girl exhibition: How female creatives are changing the way women are portrayed in advertising

In pictures: There's a Good Girl exhibition

The new exhibition reveals how female creatives are changing the way women are portrayed in advertising
UK firm Biscuiteers is giving cookies a makeover - from advent calendars to doll's houses

UK firm Biscuiteers is giving cookies a makeover

It worked with cupcakes, doughnuts and macarons so no wonder someone decided to revamp the humble biscuit
Can SkySaga capture the Minecraft magic?

Can SkySaga capture the Minecraft magic?

It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
The King's School is way ahead of the pack when it comes to using the latest classroom technology

Staying connected: The King's School

The school in Cambridgeshire is ahead of the pack when it comes to using the latest classroom technology. Richard Garner discovers how teachers and pupils stay connected
Christmas 2014: 23 best women's perfumes

Festively fragrant: the best women's perfumes

Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
Arsenal vs Borussia Dortmund: Alex Oxlade-Chamberlain celebrates century with trademark display of speed and intuition

Arsenal vs Borussia Dortmund

The Ox celebrates century with trademark display of speed and intuition
Billy Joe Saunders vs Chris Eubank Jnr: When two worlds collide

When two worlds collide

Traveller Billy Joe Saunders did not have a pampered public-school upbringing - unlike Saturday’s opponent Chris Eubank Jnr
Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?