All chancellors of the exchequer like to appear tough. They want to convey the impression that their custodianship of the nation’s economy and its finances is firm and inflexible. They favour hair-shirts. Some even create rules and laws intended to bind them to their professions of virtue. George Osborne is one of these. Yet he has already broken two of the three rules he only recently imposed upon himself and it’s touch and go whether he’ll break the third too. So is he a chancellor who fails to play by his own rules, or is he a pragmatic realist who sensibly adapts to changing times?
It’s probably all Bismarck’s fault. Ever since the nineteenth-century Prussian leader who created the powerful modern German state was dubbed ‘the Iron Chancellor’, occupants of No 11 Downing Street have quite fancied having the same sobriquet attached to them. George Osborne is no exception.
In his first term as chancellor in a coalition government back in 2010, he became the personification of ‘austerity’. The term was used to describe the policies of slashing public spending and public debt which, he said, he said were essential for turning the country round after the financial crisis that had plunged the country into the Great Recession and coloured the government’s finances in the most scarlet of reds. It’s true that he tempered his actual policies in some of the ways his opponents had advocated and became, in the eyes of some, more of an orthodox Keynesian finance minister, but it did not affect the image he wanted to convey: that of the unbending chancellor for whom there was no alternative to continuing austerity for as far as the eye could see.
In his second incarnation, as chancellor in a Conservative government with a majority of its own, he burnished the image by imposing three rules on his own conduct. He said he would put a cap on welfare spending. He would ensure that every year government debt, as a proportion of national income, would fall. And he committed himself to turning the deficit on government finances into a surplus by 2019/2020, the year of the next election.
But Mr Osborne has already broken two of those rules. Last autumn he broke the welfare cap rule when he gave in to critics on his own benches who objected to his plan to slash tax credits. Now, in this week’s Budget, he has had to admit that in this tax year he will fail to uphold the rule that the ratio of government debt to national income will fall. Only the commitment embodied in the third rule, to produce a surplus by the end of this parliament, remains and there is widespread scepticism that it can be met.
The independent Office for Budget Responsibility (OBR) he set up gives him a fifty/fifty chance of achieving it. Others, looking at the figures, are even less optimistic. In order to do so he will have to turn a £20bn deficit in the previous year into a £10bn surplus, and even though he has ‘shuffled’ around with the receipts of corporation tax to make up some of the money, on current forecasts he’d be unable to honour his rule without some further big cuts in public spending which he has so far failed to itemise. He seems to be waiting for something to turn up.
This may not be as cavalier as it looks. Things have a habit of turning up, though not all of them are welcome. One of the reasons Mr Osborne finds himself having to break his second rule is that the economic forecasts provided him by the OBR have deteriorated markedly since as recently as last November. Back then, the Chancellor was able to surprise the world with unexpected largesse because the OBR ‘discovered’ a £27bn windfall for the Treasury to play with. Wags said they had found it down the back of the sofa. This week, Robert Chote, the boss of the OBR, dryly remarked: ‘What the sofa gives, the sofa can easily take away’. Mr Osborne is obviously hoping the sofa might give it back again by 2020, enabling him to keep by his third rule without having to savage public spending yet further just before an election. In any case, that’s all a very long time off.
All this leads some people to think that the whole business of rules, and indeed of forecasts, is pretty nonsensical. No-one, not even chancellors of the exchequer, really knows what’s going to happen in an economy months, let alone years, ahead. So all that the likes of Mr Osborne can do is touch the tiller as the winds change. For all the fanfares, Budgets are just opportunities for political gimmickry.
On that basis, rather than as an obeyer or breaker of rules, how should we judge Mr Osborne? His supporters point out that in the nearly six years he has been chancellor he has presided over an economy that is among the fastest-growing in the developed world. He has halved the government’s budget deficit and he has quite substantially reduced the share of national income spent by the government.
His opponents say that his espousal of austerity was never economically necessary but was a cover for an ideological commitment to shrink the state. The victims have been unprotected public services that have seen their budgets almost halved, and poorer people and the disabled who have seen their benefits slashed.
What we do know is that for all the attention given to Budgets and to the chancellors who deliver them at the time of their delivery, few people remember the details even a few weeks after. The same probably goes for the rules. The public does not seem to be up in arms that Mr Osborne has already broken two of his three sacred rules, nor does the world seem to be falling apart as a consequence. This rather suggests that the rules are merely part of the apparel in which chancellors like to clothe themselves rather than being an essential weapon of economic management.
But that could all change. Mr Osborne warns us of a ‘cocktail’ of troubles, many of them of global origin, which threaten our current steady economic growth, rising employment and improving government finances. In that more turbulent world, the Chancellor’s playing fast and loose with his own rules may seem more serious.
In the meantime, how bothered are you that two of Mr Osborne’s rules have already been broken with the third quite likely to follow suit? What do you think of his stewardship of the economy quite aside from the rules? And what do you make of his latest Budget in general?
