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Osborne’s turning point

27 April 2012

As Paul Goodman suggests, there is something
significant about Liam Fox’s article for the Daily Telegraph this morning. It’s
not that we haven’t heard similar from the former Defence Secretary before — we have. It’s more that his economic prescriptions are being made, we learn from the Sun,
with the ‘explicit approval’ of his buddy George Osborne.

And what are those prescriptions? Well, the main one is for further spending cuts, and Fox also waxes enthusastic about greater deregulation and about protecting the defence budget (at the expense
of international aid). He also has some firm advice for the Lib Dems. ‘They make up only one sixth — not one half — of the Coalition,’ he writes, ‘and must expect that
Conservative economic ideas will be dominant.’

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This doesn’t mean that Osborne will implement these policies, of course — but it’s telling nonetheless. A couple of days on, the double-dip is feeling even more like a political turning
point. As I’ve written before, weak growth means something particularly
nasty for the Chancellor: a slower pace of deficit reduction, and a threat to our credit rating, on which he has placed so much stock. As a result, he will surely be tempted to do more to stem the
Exchequer’s borrowing, perhaps including more cuts.

At the beginning of this year, one Downing Street adviser said to me that ‘in the face of a eurozone collapse, even measures such as cutting the 50p rate would be like bringing a peashooter
to a gunfight.’ The longer Europe’s woes continue, and our own growth stumbles alongside it, the more pressure there will be for Osborne to be radical on tax and spending and other growth
measures. Whether that other ‘sixth’ of the coalition will agree with his solutions is another matter entirely.

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Show comments
  • Maurice Gosfield


    Agreed. Ed Fatballs it is.

  • Anthony J

    Some little facts:
    When Mr Brown left office the National Debt was £700bn (re Dr Fox), however when they took office it allready stood at 375bn, therefore in 13 years under Labour £325bn was added. In the two years in power Mr Cameron/Osborne have added £225bn (re Dr Fox) to the debt. This means that in 3 year Cameron/Osborne will have added to the debt by about the same amount that took Mr Brown 13 years. The question is, what will the debt be in 2015?

  • TomTom

    Superpangloss, you must understand the Monetary System. The UK Debt Management Office issues Gilts, it is part of the Treasury which handles fiscal policy. The Bank of England is supposedly the representative of the Banking System to the Treasury handling monetary policy.

    The BofE is being used to increase liquidity to the Banking System by simply increasing its Balance Sheet buying Gilts for one side of the Sheet and expanding Credit on the other.

    So in effect Banks buy Gilts from the Treasury and sell them at a profit to the Bank of England with the Bank then creating more Credit using the Treasury Bonds as collateral.

    If they cancelled the Bonds they would have to cancel the credit and impose a Monetary Squeeze which is double-entry bookkeeping.

    Now, the problem is that the Credit is inside the Banking System and they don’t lend because they have too much tied up in Mortgages, too much in Commercial Real Estate, and so speculate with the money for easy profits and the real economy has a credit squeeze.

    On top, taxpayers know that if Credit is being created to fund Government deficits, Taxes will rise so they spend less. Osborne raised VAT and fuel prices rise, APD rises, income tax changes – so people fear big tax increases and cut back spending.

    Meanwhile 67% Gilts are now owned by the Bank of England and it is a Magic Money Machine of the Bank buying Treasury Bonds to fund the Government by simply creating Bank Balances in the computer to balance the Debt issued which means it is detached from Taxes or Production and simply a virtual reality world of Banker Credits

  • Percy


    Osborne, now there’s a winner, so charismatic too….

  • Cynic

    As a result, [Osborne] will surely be tempted to do more to stem the Exchequer’s borrowing, perhaps including more cuts.” Shouldn’t that be some cuts?

  • ellis000

    Tom Pride. Don’t you get it? Fatbloke is Balls.

  • Tom Pride

    With reference to yesterday’s “Did Balls cause the recession?” and spending cuts, I always imagined the rantings of the Fatbloke moniker surfaced from the Balls/Brown bunker. It’s that aggressive, cleverer than thou, blokeishness with the hint of not quite balanced state of mind.

  • E Hart

    Here are the government’s economic policies in full.

  • Widmerpool

    Interesting times for the Tory party as a whole two miltary phrases Mr Fox[and Nad Dories] might like to bear in mind

    1 Steady the Buffs
    2 No bellyaching outside the regiment

  • cuffleyburgers

    Can this be with Cameron wobbling, mistrusted by the electorate, loathed by his backbenchers for a fake tory; that Osborne is on manoeuvres, on a proper tory ticket??

  • Superpangloss

    Can someone explain QE to me? To flood the economy with money, the Bank of England prints £350bn and buys bonds from the banks. What bonds? Largely Gilts, UK government bonds, otherwise know as government debt. So the BoE now holds £350bn of UK debt. So my question is, why is the net UK debt not reduced by £350bn?

  • Nicholas

    normanc far too conciliatory. You won’t get Labour or their shills on here to respond to reason. They live in a hard-headed, tribal world of propaganda and hatred for Tories which no amount of factual data or reason can penetrate. Fatso is a perfect example – always combative, always contemptuous, never conceding an inch, repeating Labour mantra over and over. You are wasting your time trying to persuade the likes of him. The most important thing is to keep the hands of people like him off the levers of power – whatever it takes and however dirty the fighting. Gentle, reasoned conservative principles, however you might value them, will ultimately lose this fight – and are losing it.

    Dave and company think it enough just ‘to do the right thing’ and all will come out ok in the end. But unless they start attacking Labour relentlessly and bring everything to bear in order to undermine the wretched crew of Brown’s stay behinds there will be another Labour government in power in 2015 and then God help us. They should start with a Royal Commission on institutional political bias in the BBC.

    Dave’s biggest mistake was thinking he could reach out to their supporters with “modernisation” and “de-toxification”. They still hate him though – and now the Tory right do too.

  • tom jones

    Too little too late. Osborne’s had 2 budgets to be brave and do the right thing and he’s been cautious and weak both times. He needs to stop getting people like Fox to do the talking and just take the decisions himself. All talk, no action = 2015 disaster.

  • Rhoda Klapp

    Looks like whoever has ‘the keys to No.11’ it is still Wilkins Micawber who forms the strategy.

  • normanc

    Fatbloke, let’s take a look at the bigger picture.

    Now, I know Labour’s main criticism is that the Tories talked up cuts which damaged confidence but we are where we are, let’s look to move forward from here rather than carping back to what could have been, we can all play that game but outside political point scoring there’s no value in it for us.

    We are borrowing £125bn more than we are raising in taxation. We have a visible debt of over £1 trillion. We’ve printed £350bn (or is it more by now?). We’ve raised taxes on everyone (forget the 50% rate, that’s never going to effect me nor I suspect most here).

    Do you think this is healthy and sustainable? What should we do now? Borrow £150bn a year? £200bn a year? Print even more? Raise taxes even more? When is enough enough? Isn’t that what got us into this mess?

    So, let’s hear it, if you were handed the keys to No.11 tomorrow what changes should be made to balance the books and make the future for us and our children look a little brighter.

    And it’s easy to say ‘if only AD/GB hadn’t been kicked out’ but, again, we are where we are. At least conservatives are trying to put forward an alternative to this madness.

  • oldtimer

    To put it another way, he is saying (with the benefit of hindsight?) that the coalition with the LibDems was a mistake. It would have been better for the Conservatives to have attempted to run a minority government than a coalition government. Perhaps some political fracking is in propspect.

  • Percy

    I think you’ll find that the general public isn’t listening to any of these people any more.

  • Maggie

    And Osborne will be stabbed in the back as usual by the LibDems but that only highlights what shits the LibDems are.

  • Maggie

    Being fair and trying to lesson the pain for everyone has led to widespread media villification. Osborne has nothing to lose by concentrating on paying off Labour’s debts and forgetting about being nice. The BBC, the Mail and The Guardian will continue to give credance to Balls shrill version of events. Let them. Most people have stopped listening.

  • Fatbloke on tour


    Further spending cuts – does your boss know?
    That is SpeccyLand heresy, there have been no spending cuts don’t you know.

    Oh well reality hits Trevor straight between the ears.

  • TomTom

    Liam Fox, Mr Incredibility himself ! Why protect Defence ? Simply withdraw from Afghanistan and save the Contingency Reserve – after all 9,500 soldiers in Afghan and 13,500 on the streets of London shows where the danger lies !

    Overseas Aid ? DFID doesn’t need to send aid to India, China, Afghan.

    Fox is a busted flush and Osborne is a sick joke. Lenin called for All Power to The Soviets; here it is All Money To The Banks !

    This is Banker Offshore Island with its own pet government

  • normanc

    If we were spending 30% of GDP and everything was running smoothly Cameron and Osborne’s plan of ‘do nothing, change nothing’ would be fantastic.

    Let’s hope now that even these two dunderheads might be coming to the conclusion that Gordon Brown didn’t bequeath them a handful of aces and it’s not a case of naked electioneering in the face of a strong UKIP which will be, yet again, all talk and no trousers.

  • Ed P

    This is all meaningless in the face of the impending Euro storm, like using a bucket in a tsunami. The UK should be trying to regain some economic independence before the continental disaster drags us down – improving ties with the Commonwealth would be a good start. Otherwise discussing our problems as if they are under UK control reminds me of the deckchairs on the Titanic.

  • Vulture

    Well, they may have been given the seal of approval from his ‘buddy’ George – but have they been signed off by his even bester buddy Mr Werrity, that’s the question.

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