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

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

Sustainability Manager

Competitive: The Green Recruitment Company: Job Title: Scheme Manager (BREEAM)...

Graduate Sustainability Professional

Flexible, depending on experience: The Green Recruitment Company: Job Title: T...

Programme Director - Conduct Risk - London

£850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

Project Coordinator/Order Entry, SC Clear

£100 - £110 per day: Orgtel: Project Coordinator/Order Entry Hampshire

Day In a Page

Read Next
Former N-Dubz singer Tulisa Contostavlos gives a statement outside Southwark Crown Court after her trial  

It would be wrong to compare brave Tulisa’s ordeal with phone hacking. It’s much worse than that

Matthew Norman
The Big Society Network was assessed as  

What became of Cameron's Big Society Network?

Oliver Wright
Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

Noel Fielding's 'Luxury Comedy'

A land of the outright bizarre
What are the worst 'Word Crimes'?

What are the worst 'Word Crimes'?

‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
Can Secret Cinema sell 80,000 'Back to the Future' tickets?

The worst kept secret in cinema

A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Facebook: The new hatched, matched and dispatched

The new hatched, matched and dispatched

Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
Why do we have blood types?

Are you my type?

All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
Honesty box hotels: You decide how much you pay

Honesty box hotels

Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

Michael Jamieson: Why weight of pressure rests easy on his shoulders

The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

The 'scroungers’ fight back

The welfare claimants battling to alter stereotypes
Amazing video shows Nasa 'flame extinguishment experiment' in action

Fireballs in space

Amazing video shows Nasa's 'flame extinguishment experiment' in action
A Bible for billionaires

A Bible for billionaires

Find out why America's richest men are reading John Brookes
Paranoid parenting is on the rise - and our children are suffering because of it

Paranoid parenting is on the rise

And our children are suffering because of it
For sale: Island where the Magna Carta was sealed

Magna Carta Island goes on sale

Yours for a cool £4m
Phone hacking scandal special report: The slide into crime at the 'News of the World'

The hacker's tale: the slide into crime at the 'News of the World'

Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
We flinch, but there are degrees of paedophilia

We flinch, but there are degrees of paedophilia

Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
The truth about conspiracy theories is that some require considering

The truth about conspiracy theories is that some require considering

For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn