Osborne 2012

After a few gloomy weeks in the press, you can be forgiven for wanting to block out Wednesday’s bad economic news. Fed up with last minute media chuntering about preparations for the Olympics, who wouldn’t want to instantly forget that the economy had shrunk by a further 0.7 per cent in the last quarter? Damn the double dip and roll on the games!

If you feel this way you’re not the only one. George Osborne is no doubt counting down the hours to the Opening Ceremony and the disappearance of politics from the headlines for two weeks. But the chancellor can't afford to put his feet up and watch the beach volleyball: to restore a damaged reputation he needs to unveil policies for growth in the autumn which mean something to the public, and are backed up with cash.

News that Britain is experiencing its longest double dip recession since the second world war (three quarters of contraction) cranks up the pressure on a chancellor who was already feeling the squeeze. Never fully recovered from the “omnishambles” budget, conservative commentators like Trevor Kavanagh had already called for Osborne’s demotion even before Wednesday’s dismal figures, which showed that the economy was 4.5 per cent smaller than at its peak in 2008.



Osborne’s attempt to regain the economic initiative has been lacklustre: ask a member of the public who is not a close follower of politics to name a single government growth policy and you’re unlikely to get an answer. Instead we get wheezes to encourage private sector investment without the government making any commitments which would threaten Osborne’s inviolable national balance sheet. Witness for example “credit easing” for small and medium sized enterprises, or the chancellor’s announcement last week that the government would underwrite £40bn of investment by guaranteeing bank loans to infrastructure projects. When politicians promise to solve a problem by quoting fabulous sums of money, people are instantly suspicious, and this scepticism increases considerably when they discover that the figures refer to guarantees rather than direct investment.

If Osborne wants to regain public confidence on the territory of growth he needs to present policies which are directly funded by government and which people can relate to. When the last Labour government was confronted with collapsing growth they introduced policies like the car scrappage scheme and the VAT holiday—schemes which individuals could easily understand and see would be of benefit to both them and the wider economy. Direct investment in housing or infrastructure, making full use of Britain’s historically low borrowing costs, might do the trick this time round.

It is obvious what is preventing the chancellor from doing this. Osborne has become trapped by his own rhetoric and repeated assertions that any deviation off course or loss of face with the bond market will invite catastrophe. He should know better: his inflexibility is not dissimilar to that shown by his arch political foe, Gordon Brown, when the latter banged on about “Tory cuts versus Labour investment” long after it had become plain for everyone to see that Labour would soon have to make spending cuts of its own. When Brown was eventually forced to admit this, it was a humiliating climb-down which conceded the initiative to the Conservatives: Osborne risks making the same mistake in reverse this time round.

The chancellor is faced with a heinous choice. If he puts government money on the line to try to revive growth he might be accused of inconstancy by the bond market and lose Britain’s triple-A credit rating. But if he sticks with his present course Britain might lose the rating anyway if his deficit reduction plan is made redundant by a shrinking economy. The benefit of the former is that it at least has some chance of restoring short-term growth. Ever alive to the political opportunity, Osborne might also recognise that tangible pro-growth policies—which are backed up with cash and actually mean something to voters—perhaps represents his best chance of restoring a diminished reputation. One thing is clear: once the feel-good hiatus of the Olympics and Paralympics has passed, the Chancellor will not have long to act.