Osborne prepares to admit defeat on debt reduction

The Chancellor will abandon his debt rule to prevent even deeper cuts.

In his "emergency Budget" in June 2010, Osborne declared that "unless we deal with our debts there will be no growth". But as all Keynesians know, the reverse is true. Unless you stimulate growth, you can't deal with your debts. According to the latest independent forecasts, Osborne will be forced to borrow £174.9bn more than originally planned from 2012-16, a figure that is only likely to rise as growth remains anaemic or non-existent.

Indeed, so bad is the fiscal situation, that, as today's Times reports (£), Osborne is preparing to announce the abandonment of his golden debt rule in the Autumn Statement on 5 December. The rule, which forms the second part of his "fiscal mandate" (the first relates to the structural deficit, which the Chancellor aims to eliminate over a rolling five-year period), is designed to "ensure that debt is falling as a share of GDP by 2015-16". Based on the most recent set of forecasts from the Office for Budget Responsibility, published at the time of the Budget, debt will decline from 76.3 per cent in 2014-15 before dropping to 76 per cent in 2015-16. But since then, the economy has fallen back into recession, with borrowing already up by more than a quarter on last year. As a result, independent forecasters now say that Osborne will miss his target. The IMF, for instance, has forecast that debt will rise from 78.8 per cent of GDP in 2014-15 to 79.9 per cent in 2015-16.

In response, the Chancellor could, of course, announce billions more in tax rises and spending cuts. But that would only further reduce growth, meaning that he might miss his target anyway, and would hardly endear him to voters already bruised by austerity. Thus, as the Times reports, Osborne, with David Cameron's agreement, "is ready to take a political hit on missing the target rather than face the "nightmare" of further cuts."

For the Chancellor, the consequences could be grim. The abandonment of the debt rule would dismay his party's fiscal conservatives, and could trigger the loss of the UK's AAA credit rating, the metric by which he has set such stock. But it could also offer Osborne one final chance to redeem himself. Once he accepts that debt reduction should not be prioritised over growth, the menu of policy options expands accordingly. Indeed, a  well-sourced leader (£) in yesterday's Times suggested that the Chancellor was even considering a small stimulus. And why not? With the UK able to borrow at the lowest interest rates for 300 years, it is only Osborne's political pride that has prevented a change of course thus far. Even the IMF has said that a reduced pace of deficit reduction would not lead to a rise in UK bond yields. Freed from his fiscal straitjacket, Osborne would finally be liberated to pursue a policy that works.

Chancellor George Osborne leaves 11 Downing Street in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.