Eddie Barnes: George Osborne and IMF go to-to-toe
A team from the International Monetary Fund has been poring over his vital signs and interviewing officials at the Treasury, the Office for Budget Responsibility and others. Expected today, the IMF’s verdict is unlikely to conclude that the patient is doing that well. In fact, the doctor isn’t happy at all. Having previously backed the Chancellor’s fiscal consolidation plan, with its head Christine Lagarde once saying how she “shuddered” at the thought of what would have happened without it, the IMF has already made it clear it that while a diet was the best course of action a few years ago, the UK now needs to pile on some pounds to get back to a fighting weight. It is likely to argue that Mr Osborne needs to slow down the pace of his reductions to spending in the face of the country’s sluggish growth. We look set for an Osborne-Lagarde slug-fest.
The strange thing is, however, that once politics is stripped out of the picture, quite what the two are fighting over isn’t immediately apparent. The truth is that since Mr Osborne set out his course ahead of the 2011 general election for a painful period of necessary belt-tightening, he has been forced to loosen the knot several times. Originally, deficit reduction was planned to be all but over by now, and a tigerish UK economy was supposed to be filling the Treasury’s kitty up with cash. As everyone knows, that hasn’t happened, and so the Chancellor has readjusted his plans, spreading the deficit-cutting programme over a far longer period, which will go well beyond the next general election. That doesn’t make it hurt any less for the government departments now being asked to find even more cuts, and the families on welfare whose income is being frozen, but it does align with what the IMF is suggesting. The UK’s 1 per cent fiscal contraction this year is roughly in line with other debt-burdened developed countries. So, the Treasury asks Washington’s bean-counters, what’s your point, caller?
Put politics back in, however, and the row becomes clearer. Mr Osborne is locked, politically, into his reputation as a deficit slasher; the man who won’t be bullied into a Plan B. So while he has shifted his position in the face of events, he still looks like a spending hawk, warning the nation about the dangers of allowing Labour’s big spenders back into power. On the other side, it has been reported that the IMF’s assault on the UK’s cutbacks is all part of a “proxy attack” on the US Republicans. There is clear evidence the IMF now wants to place itself on the Keynesian side of the debate.
Quite what any of this has got to do with the enormous long-term economic challenges facing an ageing society, facing a long period of low growth, and increasingly unaffordable systems of healthcare, pensions and entitlements is unclear. Labour’s shadow chancellor, Ed Balls – and Alex Salmond – won’t complain, however. If the IMF does call for change, a chunk of Mr Osborne’s cover will have been blown.