Not for turning
‘The lady’s not for turning” was Margaret Thatcher’s defiant response as prime minister in 1980 to critics pressing her to change her policy of liberalising the UK economy. Neither, it seems is Britain’s Chancellor George Osborne, about to alter course.
After delivering a further austerity budget this week, Mr Osborne has little to show for three years of fiscal rectitude, which has seen the UK lose its AAA credit rating, as its public finances have steadily deteriorated.
But although Mr Osborne’s Plan A is well off target, he has no intention of changing course, and adopting Plan B – to pump-prime the economy. In 2010, he promised to eliminate the structural – non-cyclical – budget deficit in four years. However, on his latest estimate, it will be 2017 before that happens. Once again he has had to revise down his growth forecasts – 0.6 per cent of GDP in 2013 – and again raise his borrowing estimates.
In fact, Mr Osborne has had little room to manoeuvre. Given a weak global economy and the fiscal constraints imposed by large deficits and rising debt, there is limited scope to increase government spending to boost demand. Instead the chancellor has relied on an expanding private sector to do so.
But, as yet, it has failed to oblige. Mr Osborne has cut current spending to allow for higher capital spending, and to pay for some limited tax cuts. He defined his budget as a “budget for people who aspire to work hard and get on”, as the coalition government positions itself for a general election by 2015.
Much of the British government’s hopes of reviving the economy rest with monetary policy, and how the Bank of England under its next governor, Mark Carney, will handle that. In his budget statement, Mr Osborne outlined a new remit for the UK’s central bank that could – like the Federal Reserve in the US – enable it to adopt a much more aggressive monetary policy. Mr Carney may well be the Conservative Party’s last, perhaps forlorn hope of securing re-election.