WHEN GEORGE OSBORNE rises to the despatch box to deliver his Budget, he will have been chancellor for precisely 316 days. While this is just a fraction of the decade that Gordon Brown held the job – the longest tenure in almost two centuries – the last ten months has seen a whirlwind of activity at 11 Downing Street.
Since taking office he has announced £6bn of spending cuts, raised VAT to 20% and set out plans to balance the budget by 2015 through cutting another 7% out of the economy.
The pace has been frenetic and the policies have divided the economic community. Critics believe that the speed and scale of the cuts, that begin in earnest next month, risk triggering a double-dip recession – especially in the wake of the 0.6% contraction in the economy in the final three months of last year.
Paul Krugman, the Nobel laureate economist, warns that Britain in 2011 will look like Britain in 1931, at the depths of the Great Depression. “Premature fiscal austerity will lead to a renewed economic slump. As always, those who refuse to learn from the past are doomed to repeat it,” he said.
However Timothy Geithner, the US Treasury secretary, says he is “very impressed” by what the chancellor has done. “What he did was a remarkable thing: at a time when it was easier to make tough choices quickly to solve problems that were not created by this government, he locked the coalition into a set of reforms that are good.”
Supporters of the chancellor agree that he was right to act swiftly given the situation in May 2010. “He inherited a situation that no chancellor would want to inherit,” says Howard Archer, chief UK and European economist at consultants IHS Global Insight. “He has not been afraid to take hard decisions early on that I believe are justified and are the right way to go about things.”
Archer says Osborne acted to protect – successfully to date – the UK’s AAA credit rating that he says has helped maintain investors’ confidence in Britain. “The hope is that, by taking many of the hard decisions early in this Parliament, by the time of the next election he will be in a better place and the economy will have got through it.”
Roger Bootle, managing director of Capital Economics and a former adviser to Ken Clarke, agrees, saying the immediate £6bn budget cut “changed the mood”. “What he seems to have done is to secure Britain’s reputation in financial markets that looked extremely dodgy,” he says. “There was a point where, without too much imagination, you could have seen Britain’s name in the bond markets really go down the tubes.”
However, critics of Mr Osborne believe this was a politically motivated decision. John van Reenen, a professor at the London School of Economics and the director of its Centre for Economic Policy, says a default on the UK’s sovereign debt was never on the cards, pointing to Britain’s relatively solid credit history and the size of the deficit. “The UK is not Greece,” he says. “The advantage of frontloading the pain is more political than economic. Voters’ memories are short so, in four years’ time, the pain will hopefully be forgotten.”
All commentators agree it is too early to say whether Osborne will join the pantheon of great chancellors. “If you had done a similar exercise on Gordon Brown early on in his chancellorship, it would be a pretty misleading guide to what would happen later,” says Bootle.
One way of making an early assessment is to see whether the chancellor shares the characteristics shown by predecessors whom history deems successful.
Richard Holt, author of Second Among Equals, a study of the 20 post-war chancellors up to Brown, says Osborne is already showing potential. “The most basic requirement is that they need to be in sympathy with the Prime Minister, and that’s clearly not an issue here,” he says , now chief executive of Consulting Inplace.
“The second thing is that they need to be able to out-gun other ministers: not simply use the power of the Treasury and the support of the Prime Minister, but personally influence the policies and the way they are pursued.”
He points to Osborne’s outmanoeuvring of work and pensions secretary Iain Duncan Smith over welfare reform, and of energy secretary Chris Huhne over the size of the green investment bank.
Bootle says his action on cutting the deficit has shown leadership, while he credits him for being a “good listener”. “I think he is shaping up to be a more impressive chancellor than people could have imagined before the election.”
The one criticism that unites supporters and critics of the chancellor is his insistence that there is no “Plan B” if the fiscal austerity starts to undermine growth.
Van Reenen says Osborne is driving a programme of “extreme fiscal austerity” and calls for a Plan V – after the Viagra pill – to stimulate growth. “The accelerated austerity endangers the recovery, but it also risks longer-term growth because of the premature scrapping of fixed capital and human capital,” he says.
He worries that the legacy of the Treasury’s economic policy will be a large rump of long-term unemployed people.
Archer says a lack of a Plan B is Osborne’s main weakness to date. “If things don’t pan out on the economy, there does not seem to be a real indication of what he would do if things started to take a turn for the worse.”
Businesses have been increasingly vocal about the failure of the Treasury to flesh out its plan for growth in a white paper due last year.
Richard Lambert, the outgoing head of the CBI employers’ group, publicly accused the coalition of being “careless” about the damage to job creation. Bootle says that a lack of a growth strategy is a real weakness. “So far [Osborne] has not been very strong on that.”
Ultimately, the verdict on chancellors always comes down to economic management. Nigel Lawson is remembered for the 1980s boom that turned into a bust. Norman Lamont is associated with sterling’s crash out of the ERM although Bootle says history will credit him with taking the tough decisions that laid the groundwork for Ken Clarke “to breeze in and look like a wonderful chancellor”.
Holt agrees, saying that chancellors should be judged in terms of whether they achieved what they set out to achieve. “On that basis Geoffrey Howe comes out much better than most people think.”
Osborne’s reputation therefore rests on his gamble to cut spending to stimulate growth paying off. Holt believes that this strategy is “fundamentally mistaken. “My own view is that the politics are wrong and he will suffer in the end,” he says. “But if I’m wrong then he will come out very powerful.”
As Gordon Brown used to joke during the boom of the early 2000s: “There are only two kinds of chancellor, those that fail, and those that get out in time.” Only time will tell which category history decides that George Osborne will fall into.
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