Fiscal Policy: Time to heed the word of God
Tony Dolphin put is very clearly, ‘the UK has just come as close as it is possible to come to a recession without actually being in one.’ He further stated that the real worry was the ‘possibility that the UK will experience several years of low growth, as Japan did in the 1990s.’ The dreaded L shape I also referred to yesterday.
The FT’s Lex column is clearer still, ‘By any absolute standard they [the GDP figures] were awful’.
On Newsnight last night (iplayer) the panel of business-people discussing the numbers were unanimous in their gloom. Not just former Labour minister Lord Myners but fund manager Nicola Horlick and former ASDA CEO Andy Bond, who last year signed a letter backing Osborne’s approach. In a separate interview PWC’s Chief Economist John Hawksworth warned that a double dip recession was possible.
In other words it’s not just the usual suspects who are worried about the state of the economy. My own double-dip forecast is looking less radical.
It’s time for Osborne to take stock of the economy and think again. It’s time for Plan B and it’s time, as I say in the title, to heed the word of GOD.
Or Sir Gus O’Donnell, the Cabinet Secretary, as he is otherwise known.
Back in December Philip Stephens wrote in the FT that he had written a memo emphasising the uncertainty in the OBR’s forecasts and calling for “if not a plan B” than at least a series of “possible stimulus measures”.
As I blogged at the time government sources were quick to point out that ‘Treasury Ministers’ had not requested such a memo. Which of course was in no way a denial of the story, ‘Plan B’ came from the Cabinet Secretary and the Cabinet Office and was ignored by the Treasury.
This is the context one has to consider when reading a very important Jonathan Portes article in the FT. As today’s Guardian leader rightly says:
Yesterday, Jonathan Portes, former chief economist at the Cabinet Office, reiterated his call for “scaling back” the “fiscal overkill”. Mr Portes worked in a senior policymaking capacity with coalition ministers until recently; his intervention deserves to be taken very seriously.
Portes was, until very recently, the Chief Economist of the Cabinet Office and is now at NIESR. His CV states that he ‘he advised the Cabinet Secretary, Gus O’Donnell, and Number 10 Downing Street on economic and financial issues.’
So I think his article is the best guide we can have to what the Cabinet Office Plan B looks like, in contrast to the well known Treasury Plan A, without having to wait 15 years for a series of candid interviews in a Michael Cockerell documentary.
It is a very significant intervention indeed. It describes the current policy out look as ‘misguided’ and ‘futile’ and concludes by saying:
Put simply, the UK is a large country, issuing debt denominated in its own currency. It has very long average debt maturities, and therefore no serious issues over its long-term solvency. Countries such as ours have considerable freedom over fiscal policy in the short to medium term. We should use it.
I couldn’t agree more.