The IMF's warnings to Osborne

Tax cuts and further QE will be needed if growth remains weak, says the IMF.

The IMF's latest assessment of the British economy is in and although the body has once again endorsed Osborne's Plan A, it does so with several notable caveats. Ajai Chopra, the IMF mission chief to the UK, writes in a blog that the government should respond quickly with "further quantitative easing" and "temporary tax cuts" if it looks as though the economy is headed for a "prolonged period of weak growth, high unemployment and subdued inflation." It's important to add that the IMF says it currently doesn't expect this happen but Vince Cable - who has called for "more radical" forms of QE - may have found an ally.

Then there's the fact that the body says Osborne could miss his target of eradicating the structural deficit by the end of this Parliament. It forecasts that "the cyclically-adjusted current budget" will "just reach balance" in 2015-16 (a year later than Osborne expects) but adds that there is "little margin for error".

In perhaps the most important passage in the document, the IMF notes that "consolidation has so far relied heavily on tax hikes and the phase-out of stimulus. As consolidation becomes more reliant on structural spending cuts going forward, implementation challenges may rise." In other words, deficit reduction could become even harder as the cuts come to dominate (Osborne split the pain 73:27 between cuts and tax rises).

But what of the implications for growth? It's worth highlighting another IMF study which found that, contrary to neoliberal wisdom, austerity programmes invariably lead to reduced output. The body looked at 170 examples of fiscal policy stretching back to the 1930s and concluded: "Our estimates suggest fiscal consolidation has contractionary effects on private domestic demand and GDP."

George Osborne has consistently argued that the cuts will increase confidence and that excessive state spending is "crowding out" private investment. But the IMF's conclusions suggest that "expansionary fiscal contraction" is, in the words of Larry Summers, "every bit as oxymoronic as it sounds".

George Eaton is political editor of the New Statesman.

Grant Shapps on the campaign trail. Photo: Getty
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Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.