Leader: IMF sugars the pill – but it must be swallowed

THE verdict delivered by the International Monetary Fund yesterday on the state of the British economy under the Conservative/Liberal Democrat coalition allows beleaguered Chancellor George Osborne to breathe a sigh of relief.

Under pressure after what was generally considered to have been a disastrous Budget and with tensions between the two coalition parties over economic policy emerging into the public realm, Mr Osborne will welcome the IMF’s view that cuts to UK spending over the last two years give the country some “hard-won credibility”. He can also take some comfort from the words of IMF managing director Christine Lagarde, who revealed that she has considered what might have been if the UK had not gone down the austerity road and “shivered”.

However, Mr Osborne should resist the temptation to become boastful, for the praise Ms Lagarde handed out was qualified by a warning that poor growth could become “entrenched” unless ministers inject life into the economy.

The IMF also said the crisis in the eurozone posed a significant risk which could result in what it describes as an “adverse and self-reinforcing cycle of lower confidence and exports, higher bank funding costs, tighter credit and falling asset values, resulting in a substantial contractionary shock”. In layman’s terms, there is still a risk of a deeper, prolonged recession.

The obvious question arising from this analysis is what to do, and the IMF had some radical, and controversial, suggestions on how to avoid a further cataclysmic downturn in the UK.

First, the Bank of England should introduce more quantitative easing, the modern electronic version of printing money, to boost economic activity. Second, there should be a further cut in interest rates from the already extremely low 0.5 per cent. Third, Mr Osborne should consider a cut in VAT or payroll taxes, plus a fresh injection of capital spending, paid for from cuts to public sector wages or an increase in property taxes.

Ms Lagarde said these policies might amount to an economic “Plan B”, something Labour and the SNP have been urging on the coalition, but which Mr Osborne has so far resisted. Yet if the Chancellor is sincere in his pledge that the Treasury is planning for all economic eventualities he would do well to reconsider his resistance to a Plan B.

It is clear from the IMF report that Britain is in a better economic place than many European countries, and for that it is fair to give credit to the coalition. However, it is also clear we are a long way from returning to the steady growth and stability we need, particularly to combat the scourge of unemployment. So more needs to be done. Whether it is called Plan A, Plan B or Plan Z, we need additional fiscal activism from the government to stimulate growth with extra capital a priority. Mr Osborne would be wise to take on board the IMF’s advice.

Absence was an error of judgment

Alex Salmond and Nicola Sturgeon have made much of their willingness to participate in the Joint Ministerial Committees, bodies set up to facilitate formal contact between politicians from the devolved administrations and UK government ministers but which had fallen by the political wayside until the SNP took power at Holyrood in 2007 and urged their revival.

The First Minister and his deputy have often used these meetings to showcase the work they claim to do on behalf of Scotland. Press releases were issued. Photo-calls were arranged. These committees were important, we were told.

So it is strange then that neither Mr Salmond nor Ms Sturgeon will be at the JMC meeting in London today, chaired by deputy Prime Minister Nick Clegg, and which will be attended by the First Minister of Wales, the First Minister of Northern Ireland and his deputy, along with Scottish Secretary Michael Moore. As the subject is welfare reform, a topic on which the SNP has strong opinions, their absence is puzzling.

All being fair in love and politics, a Westminster source has exploited the SNP’s failure to attend, suggesting Mr Salmond only appears when there is a chance to promote himself and hinting he does not like the hard, unglamourous work of the day-to-day business of the committee.

These comments illustrate the gloves are off in the run-up to the independence referendum, and no doubt the SNP will respond in kind. However, ordinary voters who expect Holyrood ministers to represent Scotland within the UK would be right to be angry at the ministers’ no-show and feel that, although the attack was highly political, Westminster, on this occasion, has a point.