Whisper it, but Osborne has embraced Keynesianism

The Chancellor has accepted the need for the state to underwrite investment.

The announcement by George Osborne that the government will underwrite £50bn of infrastructure investment is a belated admission that, in times of recession, the state must intervene to stimulate growth. The delusion that the coalition's spending cuts would increase consumer confidence and produce a self-sustaining private-sector-led recovery has been abandoned after Osborne's "expansionary fiscal contraction" turned out to be, well, contractionary. Whisper it, but Keynesianism is back. 

Since the decision to guarantee loans will not, in theory at least, require the government to spend a penny more, Osborne will insist that this is not "plan B" or anything like it. As his sidekick, Danny Alexander, puts it, "This is not a direct call on the taxpayer. That would only happen if something went wrong with a project." And after the private sector's sterling performance over the last month, why should we doubt him?

But even if we assume that the taxpayer won't be forced to pick up the tab for any of the projects (the FT cites "the Thames tunnel, the Mersey Gateway toll bridge and the A14 road widening in Cambridge" as examples of those that might benefit), this remains a significant U-turn by Osborne. As the excellent Jonathan Portes points out on his blog, from an economic perspective, the difference between the government "borrowing from the private sector to finance investment spending, and the government guaranteeing the borrrowing of another entity" is is largely irrelevant. The Chancellor has accepted the need for counter-cyclical spending to boost aggregate demand - the essence of Keynesianism.

Now Osborne has performed a small U-turn he will find it harder to avoid a bigger one. The belief that, in times of recession, the state can and should stimulate growth through temporary tax cuts and infrastructure spending is based on decades of economic research. Once you accept this, it is hard to be a little heretical.

Since Osborne is so fond of boasting of the UK's "safe haven" status, the least he could do is take advantage of it. He should use the country's historically low bond yields to borrow to stimulate growth through higher infrastructure spending (the most effective stimulus, according to the Office for Budget Responsibility) and tax cuts.  As the Nobel Prize-winning economist Christopher Pissarides argued in our "Plan B" special issue last October, "a small rise in gilt interest rates is a small price to pay for more jobs".

The Chancellor has finally accepted that there is an alternative to permanent stagnation (or worse). Now he needs the policies to match.

Chancellor George Osborne plans to guarantee up to £40bn of "nearly ready" infrastructure projects. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Lord Sainsbury pulls funding from Progress and other political causes

The longstanding Labour donor will no longer fund party political causes. 

Centrist Labour MPs face a funding gap for their ideas after the longstanding Labour donor Lord Sainsbury announced he will stop financing party political causes.

Sainsbury, who served as a New Labour minister and also donated to the Liberal Democrats, is instead concentrating on charitable causes. 

Lord Sainsbury funded the centrist organisation Progress, dubbed the “original Blairite pressure group”, which was founded in mid Nineties and provided the intellectual underpinnings of New Labour.

The former supermarket boss is understood to still fund Policy Network, an international thinktank headed by New Labour veteran Peter Mandelson.

He has also funded the Remain campaign group Britain Stronger in Europe. The latter reinvented itself as Open Britain after the Leave vote, and has campaigned for a softer Brexit. Its supporters include former Lib Dem leader Nick Clegg and Labour's Chuka Umunna, and it now relies on grassroots funding.

Sainsbury said he wished to “hand the baton on to a new generation of donors” who supported progressive politics. 

Progress director Richard Angell said: “Progress is extremely grateful to Lord Sainsbury for the funding he has provided for over two decades. We always knew it would not last forever.”

The organisation has raised a third of its funding target from other donors, but is now appealing for financial support from Labour supporters. Its aims include “stopping a hard-left take over” of the Labour party and “renewing the ideas of the centre-left”. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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