Duncan’s Economic Blog

The Coalition’s Plan B?

Posted in Uncategorized by duncanseconomicblog on December 14, 2010

One serious charge against the coalition’s economic policy is that it lacks a “plan B” if things go pearshaped in 2011. (See for example my own article on this with Chuka Umanna).

In as much as Osborne has  a plan B it is for more QE from the Bank of England. Today’s inflation numbers provide a further reason for caution – higher than expected inflation strengthens the hand of the hawks on the MPC, making such a monetary stimulus less likely.

So today’s claim from Philip Stephens in the FT that Cabinet Secretary Gus O’Donnell has written a paper emphasing the uncertainity in the OBR’s forecasts and calling for “if not a plan B” than at least a series of “possible stimulus measures” is important.

Politics Home reports that government sources (I’m guessing Treasury) are briefing that “Treasury ministers” have not asked for a “plan B”. But that is not a denial of the FT story, which is that a paper arguing for a quasi-plan B is circulating in Number Ten and, presumably, the Cabinet Office.

Are we seeing a divide emerge between Number Ten and the Treasury? Is Number Ten getting nervous about growth whilst the Treasury refuses to contemplate any alternative?

3 Responses

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  1. Neil Wilson said, on December 14, 2010 at 11:39 am

    Don’t you think that the government are stimulating by stealth, much as the last government taxed by stealth?

    – The convenient Irish ‘loan’.
    – Extra overseas assistance to Haiti.
    – Projects failing to be cancelled because ‘contracts have been signed’.

    It might be quite instructive to find stuff where money has magically been ‘found’ or projects that were clearly under the axe have mysteriously been reprieved.

    • Mike said, on December 14, 2010 at 2:30 pm

      Half of the initial £6bn of cuts was earmarked for spending elsewhere, supposedly.

      I suggest that the Irish bailout is not a stimulus; the money will go in re-capitalizing the banks (and not be repaid). This was money found.

  2. Mike said, on December 14, 2010 at 2:51 pm

    There was always scope for a Plan B, in that the OBR’s function is to continually forecast its target – the deficit – and suggest changes to spending/taxing to hit the target. And the target is the deficit, not growth, inflation, employment. (Inflation is the Bank of England’s target. Is the Bank still independent?)
    The interesting bit is the nod towards the OBR’s underlying assumptions about private sector growth – the forecast error.
    The Treasury and Mervyn King will back cuts, irrespective of which party’s in Government.


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