George Osborne’s debt dilemma
I am sure it was not scripted but the Governor of the Bank of England’s first TV interview in the eight years since he took over the job on Channel 4 News last night certainly came at the right time for the Chancellor, George Osborne.
Sir Mervyn King, in a wide-ranging interview, effectively gave the green light for Mr Osborne to change his mind on the strict debt rules that the government has imposed on itself since coming to power in 2010.
He said that if debt targets were not met it would be OK, “If it’s because the world economy has grown slowly, so we have in turn grown slowly, then that would be acceptable.”
No-one, least of all his coalition partners, the Liberal Democrats said that he had to make deficit reduction the central part of his economic policy.
Mr Osborne and the Conservative Party chose to do this because they thought (and maybe still think) that it was the right path for the UK to cut debt.
Mr Osborne’s aim was to reduce debt by the end of this parliamentary term which runs out in 2015. Latest figures out today suggest that this is unlikely to happen, even though the government has benefitted from a £28 billion windfall from Post Office pension funds.
The dilemma for the government over how to cut the deficit whilst still boosting economic growth has been seized on by Labour as the UK entered a double-dip recession.
In the last 12 months, Labour has become closer to winning the economic argument. This has been quite surprising because Labour’s economic policy and reputation was in tatters at the last election as it failed to curb debt in the good times.
Thus meant the new government had to take hard and unpopular decisions to stop government debt ballooning out of control and to ensure the UK kept its cherished triple-A credit rating.
The credit rating has been another priority for Mr Osborne and it means both the government and individuals can borrow at lower rates.
However, though the markets, ratings agencies and central bank have all endorsed Mr Osborne’s focus on reining in the deficit, many organisations, including the IMF and OECD have said that debt reduction must not come at the expense of or instead of growth.
Labour has echoed this by calling out the Chancellor for his inability to implement a Plan B for the economy.
So, in the run-up to the Autumn Spending Review, due in the first week of December, will Sir Mervyn’s words lead to a change of tact by Mr Osborne as he searches for the elusive grail of economic growth to turn the economy round?