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THE stock market is falling and the economic growth rate is plunging but no stock has fallen so far and so fast as that of the shadow chancellor, George Osborne, since the economic crisis erupted earlier this autumn. And he has taken the Tory Party with him. According to the YouGov poll in yesterday's Sunday Times, in September, when the financial panic erupted, the Tories were 19 points ahead in the polls. That lead had halved to 10 points a month ago and according to research published yesterday it has now halved again to five points. On this evidence a Tory victory at the next general election is no longer a foregone conclusion.
Other polls paint a less dramatic picture but no one argues about the trend and they argue even less about why it has happened. The economic crisis has played to the Prime Minister's strengths and Gordon Brown has been transformed by it from the indecisive disaster of last summer into someone who has carried off a passable impression if not of world leadership, certainly of being one of the few world statesmen with a clear vision of what needs to be done.
But in our adversarial political system if Brown is looking good it must also mean that the Tories are failing to land a glove on him. So questions are being asked about whether Osborne, bright and personable though he may be, is sufficient of a heavyweight for the shadow chancellor's job. And these doubts have been brought centre stage by the shadow chancellor's comments over the weekend that Brown's policies could lead to a run on the pound — a comment which allowed Labour, in essence, to paint him as unpatriotic.
When the noise subsides though, the Labour mud may not stick. It is a long time since sterling was central to the political debate — a long time since a run on the pound made governments shiver. A generation ago Britain was vulnerable to any fall in sterling because she relied on the confidence of foreign investors to keep the nation afloat. But in the past 20 years we came to believe those days had gone for ever. Now though, there is reason to have doubts and Osborne, tactfully or not, has put his finger on those doubts. Perhaps we are more in hock to foreign investors than the Government cares to admit.
The issue is not actually the level of the pound on the foreign exchanges. Sterling has fallen by a quarter against the dollar in the past few months and is at an all-time low against the euro but, other things being equal, it suits Britain for the pound to be weaker because that makes our exports more competitive and we are going to have to rely on export growth to keep the economy moving.
The problems that come with it are twofold. One is that imports cost more and fuel inflation, though that in this climate is not something to worry about. The second is that foreign investors, whose loans and purchases of government securities provide the raw capital which finances both the banking and the public sector, may steer away from a currency that is falling in value. If they decide not to take the risk of buying sterling assets then the economy could indeed be in real trouble because we need their money to pay our bills.
The Government is currently seeking to solve our economic problems by borrowing on its own balance sheet so it can give voters the tax relief they need to pay down their own debts — debts which many can otherwise not afford to service. Much of that money will have to come from abroad and one of the huge questions no one wants to ask, let alone answer, is whether our Government is big enough and credit worthy enough to take on such a massive burden. Iceland wasn't; Hungary wasn't; Ukraine wasn't; so it is not a hypothetical question.
The venom of the Labour attack on Osborne suggests that it is not a debate they want to encourage. Presumably they are only too well aware that if foreigners will not lend us the money the only alternative is to do without — which means massive retrenchment at home.
Labour's strategy is to keep the debate at a high level. The meeting of the world's leaders in Washington over the weekend — the so called G20 — was never going to live up to the pre-match hype, and so it turned out. But it achieved two important things. It got a commitment from the world's leaders to try once more next month to complete the Doha round of tariff reductions to help sustain world trade. That helps offset one spectre of the 1930s when countries made things much worse by retreating into protectionism. Second, it urged the world's leaders to use fiscal policy — tax cuts and increased government spending — to try to boost the world's flagging economies and set the seal of approval on such measures.
Not that one of their number — Gordon Brown — needs the encouragement. This time next week in the pre-Budget report Alistair Darling will announce a stream of tax giveaways. Most will be targeted at the lower paid, either through family tax credits or changes in the tax thresholds, and a massive increase in the pensioners' winter fuel allowance because they are the people most likely to spend the money and boost the economy.
He will also probably find more money to spend on infrastructure —more road or rail improvements perhaps. It is also hinted that Brown wants something dramatic which will stop everyone in their tracks — a cut in VAT to 15 per cent or even 12 per cent being one suggestion — and, of course, further cuts in interest rates from the Bank of England. His theory seems to be that if profligacy is to be the new prudence you might as well behave as if you mean it.
Of course there comes a point where the global international statesman rescuing the world economy overlaps rather neatly with the domestic politician seeking an excuse for a pre-election tax giveaway. Osborne's real problem, leading the Opposition charge, is how to separate the two in the public mind so he can support one and challenge the other.
It will be no coincidence that most of next week's pre-Budget measures will play well with traditional Labour voters and revive the Government's flagging agendas of social fairness and greater equality. They will also, crudely, put a whack of money in the pockets of voters in the Labour heartlands and it must be a fact that most people will not care where the money came from nor why they got it, but will simply be grateful to the donor.
This is perhaps the key shift in the past few days and the real lesson for Osborne. The political agenda is still allegedly about solving the global international crisis, but he needs to grasp that it is, in fact, also being driven by issues which are much closer to home. Next Monday's pre-Budget statement promises to be the mother of all pre-election giveways. How Osborne rises to this challenge is more important for his future — and the prospects for the Tory party — than anything which may happen in the meantime to sterling.
Reader views (25)
i found it very funny that all politicians officially admited recession yesturday....but it has started at least one year ago...that shows, government can't do business
- James, london, 19/11/2008 01:15
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The problem with the British people is that so long as they get a tax-cut so they can continue over-eating, binge-drinking and watching Eastenders, they will be happy and they will vote for Labour again. It matters not that Gordon Brown is about to send Britain back to the economic equivalent of the Callaghan-Healey era. We too will soon be off to the IMF for a loan ... again.
- Ant, London, 18/11/2008 14:32
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Just suppose for one mythical moment, that Mr Brown was the opposition leader, and had been for the past two out of the last 11 years. He would, I am totally sure, be absolutely forthright in his unreserved support of a government that had systematically destroyed the county's economy.
George Osborne's job description is to draw attention to the consummate and continued failing of Mr Brown and his inept group of colleagues.
Enough is now enough.
- J R J, Ballagarey, 18/11/2008 09:13
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Simply put--you cannot borrow or spend your way out of financial problems, Frugality is the only way to recover. It may be painful but does not put your children and Grwandchildren in Debt. How can more spending be and answer that was created by too much spending. It is crazy !
- Ruckus, Myrtle Beach USA, 18/11/2008 08:46
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you can be sure the current fiscal situation will result in attacks on liberty (more rules telling us what we can and can't do), expansion of the government (more public jobs to guarantee some votes for all this) and increases in taxes (for those of us who make "too much").
It's trickle-up poverty and BritNanny at her best.
- John Smith, Allston, MA USA, 18/11/2008 07:20
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I have felt for some time now that Canmeron should have poached Vince Cable from the Liberals, a great coup this would have been. If this was is not possible then Ken Clarke shpould be restored as Shadow Chancellor. In other words, what the Tories need now are some big hitters. Where are the attack dogs (a la Tebbitt) these days? This government, nay shower, are there for the taking. The opposition should be priming them for a good hammering whenever the election comes around.I cannot believe Labour are getting off so lightly.
- Mike, London, 17/11/2008 19:31
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You advance two separate theses as to the reasons for the rumoured tax cuts:
"The Government is currently seeking to solve our economic problems by borrowing on its own balance sheet so it can give voters the tax relief they need to pay down their own debts"
"This time next week in the pre-Budget report Alistair Darling will announce a stream of tax giveaways. Most will be targeted at the lower paid, --- because they are the people most likely to spend the money and boost the economy."
So which is it Anthony? Does GB want 'hard-working families' to reduce their debts or blue their own money (that he is gracious enough to return to them) on imports from China for Christmas?
- Matt, Sao Paulo, Brazil, 17/11/2008 18:27
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People who are borrowing more from banks or other credit suppliers in order to cover their outstanding debts are painted as imprudent by the government. Don't borrow from peter to pay Paul was one of the main tenets of prudence.
Now the government wants to borrow even more so that we can spend more?
The PM frittered away the best position the country has been in for decades and put nothing away for the future, the current chancellor has only ever closed companies down!! (Railtrack and Northern Rock anyone??) Now thank god he has only responsibility for the entire country!
- Johnw, Peterborough, Cambs, 17/11/2008 17:31
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What a shambles it all is. I am sure all sensible people will not be fooled by Gordon's generosity with other people's money that he intends borrowing on our behalf.! He really ought to take a leaf out of Margaret Thatcher's book and apply simple household economics to the economy of our country! Get real folks, he wants to be re-elected but I for one will not be voting Labour whenever the election is held. I simply do not fancy my children, grand children and probably great grand children picking up the tab for this lot!
- Diana From Devon, Newton Abbt, UK, 17/11/2008 16:53
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George Osborne deserves credit for speaking out and being attacked by Lord Mandelson is a very clear indication that he has put his finger on a problem New Labour would rather we did not address. George is suffering from one of those bouts of media frenzy which seem to inflict polticians and others in public life from time to time. Some TV coverage in particular has been grossly biased against Osborne.
- James Elliott, Eastbourne UK, 17/11/2008 15:51
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As an old man who has seen this sort of financial upheaval before I have to say that this current problem has the makings of global melt down as apposed to just one country as as happened before. But what amazes me is that nobody seems to admit (or realize?) that the problem is one of trust for the basis of paper money. There has been no gold standard in the UK since just after WW2, and no US gold standard backing up the value of the Dollar for the last thirty odd years..AND now the US owes SIXTY TRILLION dollars of debt, What if the US devalues in the face of that horrific amount of debt. MELT DOWN! as all the other currencies are bases on it's value.
What is the point of keeping money in banks (or even under the bed?)if it has NO REAL value. ERGO The US HAS TO RETURN TO THE GOLD STANDARD... (And then give the keys to Fort Knox the the IMF??).
Gordon Brown seem to think that an "I promise to pay" by all the rich countries of the world will suffice. Yeah right..only in his dreams!
- Keith, Dartmouth Devon, 17/11/2008 15:15
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Last time I looked, Wisbech was still in England, Mr House! If you intend spending 50% of your time out of the country, keeping all of your assets in Sterling is simply being imprudent. And it's 25% (though counting ............)
- Paul, London, 17/11/2008 15:10
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While I dislike Conservatives, Labour and Liberals equally, I have to say here that Mr Osbourne is completely right. Handing money out and not attempting to even try and balancing the books is a recipe for economic disaster, there is no pain without gain, yet Crash Gordon is trying to sell his economic plan that seems to be based more on ideology then sound economic fundamentals.
And one other thing, I see some people complain about how Mr Osbourne is a lightweight and or has dubious social connections. Its depressing just how shallow and pointless too many people are when they come to selecting people for public office, where is the talk of ability?
- Gareth, Tonbridge/UK, 17/11/2008 14:40
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Oh dear George from London, maybe you should get rid of your chippyness. Not every politician can be old, uneducated and bad mannered - like Gordon Brown.
- Delphine, Oxford, 17/11/2008 14:40
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David House, I have enormous sympathy for your point of you. It is galling indeed that those that have practiced prudence have been shafted by he who advocated it at every turn. As for Osborne, whatever one says about him, I am at least glad he brought it to the public's attention that sterling's weakness could well be attributed to excessive government spending, if not in the recent past then certainly in the future. Hopefully that'll make the government moderate its "negative prudence".
- Curtis, UK, 17/11/2008 14:26
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Every one capable of a small ounce of thinking ability knows George Osborne is right in what he says, and it his jobs to say it. Those same people know that the economic mess that the UK finds itself in is not a world problem but a UK problem created by Gordon Brown. That is why the UK has been devalued this year by 25% against the rest of the world.
Gordon Brown created this mess, and our children’s children will be paying for it, long after Brown and a lot of us have left this world.
On TV over the weekend it was shown Gordon Brown has now created a debt of £96,000 for each household in the UK to pay back. His response is lets borrow more?
- Ian, Reading, England, 17/11/2008 13:11
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Ken Clarke would be a good stop gap shadow chancellor but Cameron obviously doesn't like people who went to state school. Practically his entire shadow cabinet either went to Eton or St. Pauls.
- Matt, London, 17/11/2008 13:04
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I am really mad at all of this. I owe nothing to anyone, being mortgage and credit card free. My house and business are owned outright and my assets are held in sterling cash deposits and not entrusted to shareholdings. I have been careful and worked hard to get where I am now. I also spend 50% of my time living abroad and right now am a long way from the UK. Why should my effort and prudence be penalised to save those reckless people who over borrowed with the "must have it now" mentality? Why have my interest payments decreased? Why are my pounds now worth 30% less than they were only a few months ago? I have done nothing wrong, I have paid my taxes, worked hard and only consumed what I needed to, helping many others along the way either directly or through employment. Those who borrow should suffer the consequences, let the housing bubble burst, let the market correct itself and make sure people like me don't get punished for the sins of profligacy by others.
- David House, Wisbech, 17/11/2008 12:52
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Mr Osborne refuses to reply to letters; I have asked him to explain his relationship with the Bilderbergers whose annual shindig he attended; he gets his secretary to reply with a "non-reply" ie "mind your own business". He mingles with some desperately unpleasant people eg Deripaska, Murdoch et al.
- Neil, london uk, Airstrip ONE ., 17/11/2008 12:34
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Sadly, Osborne is a lightweight. He doesn't show an understanding of economics and the markets. Wikipedia shows him as having a second-class history degree!
If the Conservatives want to be taken seriously, they need to have someone who is hard hitting, not some foppish ex-public schoolboy who has yet to start shaving.
- George, London, 17/11/2008 12:10
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With Mandelson's help it certainly looks as if Brown is managing to fool many of the people for much of the time whilst hoping the chickens come home to roost after the election.
- Derek Holmes, Carmarthen Wales, 17/11/2008 12:00
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Why is it that when Labour made anti-economy noises prior to 1997, no-one gave a hoot? Now that Goregeous George is saying in public what every banker and economist already knows, he is a heretic.
When are the Tories going to start spinning against the rubbish that emanates from this government? Brown created this country's woes and has the gall to tell us only he can lead us to salvation. Labour "demands" that utility companies and oil companies reduce their prices, whilst refusing to cut any tax or duty. The Chancellor says he will spend his way out of a crisis by building up more debt and giving away tax credits to scroungers on the dole. We also have a senior minister saying that perhaps spending over £9bn on a festival of running about and throwing things is not a good idea during a recession.
It really isn't difficult to oppose this government.
- Nobby Clark, Perth, Scotland, 17/11/2008 11:59
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the pound must not be alowed to crash, and i totaly support George Osborne in calling out the Gordon on this issue.
- Paul, greenwich, 17/11/2008 11:44
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Challenging Brown's fiscal solutions is not unpatriotic – VERY TRUE. But speculating on British pound shows Osborne’s immaturity and desperation. He should be replaced by someone bit more capable of challenging Brown-Alistair team.
- Raul Joseph, London, 17/11/2008 11:42
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With my new product well under way, we are looking to go into manufacturing February 2009, asking the bank for a 10K overdraft has just been turned down (NATWEST) if the banks stop supporting small business, and its self get bailed out, what is the point of the goverment putting money back into the bank if they won't support small busines.
- James Nash, london, 17/11/2008 10:44
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