The dark before the dawn?

Peter KellnerPresident
July 23, 2012, 8:52 AM GMT+0

Britons' latest view of Chancellor worsens – but, Peter Kellner asks, is there long-term good news for Osborne?

If George Osborne hoped that he would spend only a few awkward, post-Budget weeks navigating his sea of troubles before reaching calmer waters, YouGov’s latest poll for the Sunday Times will come as a shock.

Just 15% think he is doing a good job as Chancellor – the same dire figure we found in late June, and less than half the 34% we recorded at the time of last year’s Budget. Only 20% think David Cameron should keep Osborne at the Treasury – even less than the 24% we reported in late June. And now, as then, fewer than half of Conservative voters want him to stay on as Chancellor.

Want to receive Peter Kellner's commentaries by email? Subscribe here

As the embarrassing U-turns that followed the Budget have disappeared from the headlines, something more must be happening. It is. The explanation can be found in responses to one specific question. It contains bad short-term news but, just possibly, longer term good news for Osborne.

The question, which we ask from time to time, is this:

Thinking about the Government's economic policies, which of the following best reflects your view?

The Government should stick to its current strategy of reducing the deficit, even if this means growth remains slow

The Government should change its strategy to concentrate on growth, even if this means the deficit stays longer or gets worse

In the six months leading up to this year’s Budget, voters were evenly divided. In early March, 38% wanted the Government to stick to Plan A – its deficit-reduction – while 34% wanted policies that would bring faster growth.

Since the Budget, the numbers wanting a switch to Plan B – putting growth before deficit reduction – have grown. Our latest figures show the biggest support yet: 43%, compared with 31% who want Osborne to stick with Plan A.

The short-term perils of keeping to Plan A are obvious. This week sees the first estimate of how Britain’s economy fared in the second-quarter of this year. Most economists – at least, those economists cited by the media – expect more bad news. What with the problems in the Eurozone area, the bad weather and the extra day’s bank holiday for the Jubilee celebrations, conventional wisdom suggests another quarter of falling GDP. If so, expect the public to shift further in the months ahead towards preferring Plan B over Plan A.

Why, then could the public’s fears about Britain’s economic weakness contain brighter longer-term news for Osborne?

Here are two reasons. The first is that, surprisingly, the Government could increase spending sharply on some projects without breaching its overall spending targets. Bank of England economists reckon that Whitehall departments are currently underspending their budgets by a combined total of around £15 billion a year, or 1% of GDP. This could be ploughed back into the economy, and create a large number of new jobs, if the Government accelerated plans to improve Britain’s infrastructure. Indeed, this is behind some announcements along these lines in recent weeks. If – and it is a big if – enough ‘shovel-ready’ projects could be found, then tens, maybe hundreds, of thousands of people could be put back to work.

And if the Bank of England’s latest attempt to encourage banks to lend more led to more investment, and especially a revival in house-building, the effect could be amplified. By the time of the next election, Osborne could have reason to claim that he was right all along to hold his nerve.

The second reason is more technical, and has to do with the economic statistics themselves. The initial figures released by the Office of National Statistics are often revised, and sometimes sharply. To illustrate this, think back to the 2010 election. Labour lost for a variety of reasons, but one was a sense that not only had Britain dived into recession on Gordon Brown’s watch, but that there was little sign of recovery.

When the election campaign started, the latest official figures were those that ONS had published in January 2010. These showed the following figures for GDP for the previous three quarters: minus 0.7%, minus 0.2%, plus 0.1%. Overall, the economy was reckoned to have contracted by 0.8% between the first and last quarters of 2009, and seemed to end the year flatlining.

On April 23rd, midway through the election campaign, the 2009 figures were revised, and a first estimate for the first quarter of 2010 published. This showed a pick-up in GDP of 0.4% in the last quarter of 2009, but then growth slipping back to just 0.2% in the first quarter of 2010. Britain’s economy seemed to be struggling to emerge from recession. Brown was still doomed.

Today, the story looks rather different. The ONS now thinks that recovery started earlier, and gathered speed faster, than it said at the time. In the second quarter of 2010 – when the election itself was held – GDP was actually a healthy 2.4% bigger than it had been in the spring of 2009. Far from doing nothing effective to pull Britain’s economy out of the mire, the measures taken by Brown and Alistair Darling, his Chancellor, were actually rather effective.

Why is this revisionist account of Labour’s final months potentially good news for Osborne?

Because I suspect the same thing may happen to this year’s GDP figures. As David Smith points out in the latest Sunday Times, the GDP figures are out of line with other indicators. More people than last year are in work, unemployment is falling, and surveys of business confidence imply growth, not recession. I would not be surprised if we discover in a year or two’s time that Britain never went into a double-dip recession at all.

If so, a similar process of statistical correction will have a very different political impact. The revisions of the 2009/2010 figures came well after the last general election. They were far too late to help Labour. This time, any revision is likely to come well before the next election, in good time for Osborne to tell a happier story.

Of course, this may not save him or his party. Even if the most recent GDP figures are revised upwards, nobody can guarantee that growth will continue. Britain’s export markets, especially in Europe, still look fragile. We may find that the double-dip has been postponed but not prevented. Plan B may still be needed.

However, any dispassionate assessment of Britain’s current economic problems must cope with the financial equivalent of the fog of war. Nobody can be sure where we are, even less where we are heading. Which means that Osborne can’t be certain that Plan A is working – but his critics can’t be certain that it is doomed.

See the survey details and full results for our latest Sunday Times poll

Want to receive Peter Kellner's commentaries by email? Subscribe here