Osborne plays politics when City is in no mood for games

Gideon Spanier
22 Sep 2009

It's a back-handed compliment for George Osborne. Both the Lib-Dems and Labour have identified the chancellor-in-waiting as a target for attack.

Lord Mandelson, his old nemesis, dubbed him a “boy in a man's job” yesterday while Vince Cable told his party conference that Osborne's only experience is running the Bullingdon Club bar at Oxford. It is clear they regard him as the Tories' weak link.

Osborne's likely role, as the man responsible for nursing Britain's public finances back to health after the next election, means he is ripe for scrutiny.

Many in the City feel it is long overdue. Several themes recur in conversations about Osborne: his lack of experience, his slow and inconsistent response to the banking crisis, the apparent lack of policy ideas, and his over-enthusiasm for political point-scoring (witness the leaks of Treasury documents over which he has presided in the past week).

That's why those criticisms made by Mandelson and Cable have struck a chord. Osborne is a clever and able operator, of course, and has heard much of this before. The problem is that he has been struggling to head off the critics by offering a coherent economic message.

He looks instead too much like he is focused on his other job as the Tories' general election campaign chief.

Sitting in the audience for Osborne's major speech to The Spectator conference last week where he laid out his economic agenda for a Tory Government, I can't say I felt moved.

There was little new in his three main pledges: “monetary activism” to keep interest rates low, fiscal responsibility, and “supply-side reform” (cutting taxes and red tape and revamping welfare and education). He did make one interesting point: Darling's 2.5% VAT rate cut has cost the Exchequer £12 billion and had little appreciable effect whereas the Bank of England's 4.5% cut in interest rates is saving borrowers nearly treble that amount and will have cost taxpayers nothing.

Yet he still seems remarkably light on ideas. His one serious proposal, to give more power to the Bank of England, announced over the summer, has received a lukewarm response from a City still doubtful about the Bank's handling of the crunch.

Osborne was more revealing when he took questions from the audience afterwards and went off-script, notably when he was asked what areas of capital expenditure he might slash. It was then that he let slip that he was looking at the Eurofighter/Typhoon project and the A400 transport aircraft. Cutting them could save big money — £30 billion.

That hint of specific cuts was at least a sign that the shadow chancellor is thinking carefully about what to prune. And, some will say, it is understandable if he wants to keep some policy ideas under wraps — not just until the party conference but the general election itself.

In terms of the big picture, the shadow chancellor likes to claim that he is winning the argument. He has been calling for cuts ever since Alistair Darling's April Budget — not such an easy move, argues Osborne, given that any pledge to cut public spending cost the Tories dear at recent elections.

Now Labour has belatedly acknowledged what Osborne (and the Lib-Dems and everyone in the City) was saying: that cuts are unavoidable.

Alas the shadow chancellor's zeal to score points has again undermined him. His decision to release leaked Treasury documents last week showing Whitehall is already preparing for 9.3% budget cuts was undoubtedly a blow for Labour.

But it also raised difficult questions for Osborne for which he didn't seem to have an answer. If Whitehall is going to cut by that much, what are the Tories planning? More than the 10% that they have already indicated?

Conservative HQ's release of a second batch of Treasury documents raised more questions. Osborne said the leaked data showed Labour was planning a secret 3p increase in income tax. Except it turned out the figures had already been published in the Budget, making the shadow chancellor look unwise.

The City is distinctly underwhelmed. Chancellors are meant to safeguard market-sensitive information and should not be seen to leak. This could start to look like carelessness, especially after his notorious Corfu holiday last year when his bad-mouthing of Mandelson backfired.

Yet again the shadow chancellor appears to be thinking too much about politics and that second job as general election supremo — a suspicion reinforced by talk that Osborne himself admits he only spends 40% of his time on economic matters.

No wonder business leaders are worrying about the man in line to be the next finance director of UK Plc.

Bicester benefits from luxury at a discount in the recession

One of the oddities of the recession is that for a significant minority who have kept their jobs and seen mortgage rates fall to record lows, they are actually better off.

I reckon these people must make up a good number of the shoppers at Bicester Village, the luxury discount retail site in Oxfordshire, where I spent a day last week.

Bicester is a phenomenon. Value Retail, the privately owned group that founded the village in 1995 and runs a further eight sites across Europe, tells me that like-for-like sales have risen 20% at Bicester this year. Footfall is up 15% and spend per customer is ahead 20%.

This compares with the latest general figures for UK retail that show sales growth is flat.

The Bicester concept is simple: Retailers offload stock that they can't sell — at discounts of up to 60% but in an upscale environment that does not damage the brand, and in a location just far enough from London (a 90-minute drive) so as not to undermine “full price” stores in Bond Street and so on. Value Retail makes money by taking a percentage of sales.

No wonder shoppers, still eager for luxury in recession, are keen — particularly as brands are sending more stock than ever to Bicester in these hard times on the High Street.

Cleverly, the 125 or so brands at Bicester are not only top-end (Dior, Gucci, Burberry) but also some more affordable names (Hobbs, Monsoon), quirky boutiques (Cath Kidston), and even an occasional “pop-up” shop (Elizabeth Hurley had a temporary bikini outlet).

The shoppers reflect that mix: from Knightsbridge ladies to Mancunian day-trippers. But looking around Bicester (the stores are housed on a single outdoor thoroughfare), it's clear many of the customers — some 40% — are tourists. A third now hail from China, 30% from the rest of Asia and 15% from the Middle East.

The weak pound has helped, but it also shows that, like so much else in the credit crunch, spending power has shifted eastwards.

Putting the fear into ITV

ITV's search for a new chief executive has proved to be even more chaotic and ill-tempered than any of us could have imagined. Ex-BSkyB boss Tony Ball always looked like a smart choice with his background in pay-TV, but his chutzpah is something else.

He has reportedly asked that his share options be backdated to May, when his candidacy first emerged, as he is claiming credit for the 49% rally in ITV's share price since then. It's a laughable suggestion — leaving aside the fact that Simon Fox of HMV was first choice for the job until July. Perhaps Ball would like to claim credit for the rise in other media shares in the past six months (Yell up 400%, Trinity Mirror up 540%)?

But Ball's nerve does underline one point. He would be a fearsome operator if he ran ITV.