Osborne will struggle to debate the IMF head-on

Without being able to turn to now-slain canards, the chancellor's arguments fall apart.

George Osborne is to make one of the most direct responses yet to the IMF's interventions into UK politics this week, according to the Guardian's economics editor Larry Elliot:

The Treasury intends to reject the IMF's call for an easing in the pace of deficit reduction and will insist that any change in the strategy is both unnecessary and counterproductive. Alarmed at the flatlining of the British economy in 2011 and 2012, the IMF said last month it was time for Osborne to do more to boost economic growth and urged that he should rethink plans to cut the government's structural budget deficit by 1% of national income in 2013-14.

The chancellor was stung by the criticism, which was seized upon by shadow chancellor Ed Balls as evidence the government had damaged the economy with an over-aggressive austerity approach.

It's an argument which the chancellor is ill-equipped to take public, since the IMF is pushing the one policy which Osborne has no real response to: apolitically arguing for a modest increase in deficit-funded investment.

Elliot reports that Treasury officials will be relying on the time-worn "credibility with the financial markets" response. That's one which might play well with the public, but has little-to-no relation to the real world. In fact, Britain's Bond yields are depressed, just like the rest of the non-Eurozone developed world's, by the financial climate. Investors, scared of the prospect that they might lose everything in another bank run or stock market collapse, buy up bonds in countries which control their own currency just to have a safe place to store money. The situation has even been called a "reverse sovereign debt crisis", to reflect that fact that, in many cases, yields are so low that governments are being effectively payed to look after money.

(The rush to safe assets is also likely what prompted Apple to issue its own $17bn worth of bonds; multinational companies are safe enough that investors are happy to park their cash there, too.)

The Chancellor and Treasury are more at easy arguing within the British political context, where the mantra "more debt is bad" is so ingrained into the debate that they don't have to try to justify it. That's why the Conservative party feels they can torpedo any of Labour's plans just by pointing out that they are aiming to "borrow more to borrow less" (despite the fact that that's an entirely reasonable suggestion, as anyone who has consolidated debts, installed double glazing, or taken a season ticket loan will tell you): the opposition flounders in the face of such an attack, unsure whether to argue that they aren't really borrowing; that they are borrowing, but it will result in less future debt; or that they are borrowing and that's better than the alternative.

The IMF has no such qualms. It is telling the UK that borrowing more is good, and challenging the government to actually go back to first principles and explain why its debt reduction program must take eight years, compared to the initial plan of five. Why not nine? Or ten? Or 12?

Faced with having to justify his most basic beliefs, the chancellor is forced to retreat to canards long since slain. The "financial markets" are not rewarding the UK for austerity, nor will they punish it for slowing the pace of fiscal consolidation. In the meantime, the UK economy is very definitely feeling the hit of the lack of any coherent plan for growth over the last three years; and it feels like that pain will last a lot longer.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

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