What are Osborne's choices now?

The Chancellor can do what’s best for the economy or retain the support of the Tory party faithful. He cannot do both.

The original game plan for the Conservative-led coalition was fairly simple: to eliminate the structural deficit it had inherited within the five-year parliament and ride the global recovery back to economic growth. With that achieved, the Tories’ reputation for economic competence would be restored, promises to end austerity could be made, and a thumping Conservative majority in 2015 would be the just reward. Unfortunately that proved to be one of many over-optimistic projections.

With the Conservatives and Liberal Democrats now trailing Labour in opinion polls, George Osborne appears to face a difficult balancing act between nurturing a pallid economic recovery, maintaining the UK’s AAA credit rating, broadening support for the coalition’s policies, and cementing the loyalty of the Tory party faithful. It seems unlikely that all of these objectives can be achieved simultaneously.

Broadly speaking, the chancellor has three options. First, he could slow the pace of fiscal consolidation over and above simply allowing the "automatic stabilisers" to work, reducing the fiscal drag on the economy. Yet, 90 per cent of those who support the government believe the pace of tightening is about right, or could even be accelerated. With the coalition's austerity programme not even halfway complete, reversing course now would be an admission of failure, a sure-fire way of losing yet more support in the run-up to the 2015 general election.

Alternatively, the Chancellor could maintain the current timetable of austerity but look to spread the pain more broadly across society. Economically, this could make sense. ASR’s UK Household Finances Survey clearly illustrates that those on lower incomes are most insecure in their jobs and are experiencing the most significant financial pressures; shifting more of the burden onto those with broader shoulders could help to free up disposable income and support consumer spending. But again, this issue polarises opinion.

Finally, the Chancellor could look to stay the course and stick with the current strategy. This is not as simple as it sounds. As the Institute for Fiscal Studies has pointed out, another £27bn of cuts will need to be specified if the Chancellor is to meet his fiscal envelope. Assuming the coalition endorses the opinions advanced in the Household Finances Survey and maintains the sacrosanctity of the NHS and education, this would leave other departments facing unprecedented cuts of 16 per cent in real-terms during the three years to 2017-18 – areas such as the police, defence and transport. Such cuts look unviable and would prove unpopular. In other words, maintaining the status quo is a false option; the Chancellor will have to either inflict further pain on some segments of society or abandon his remaining fiscal targets before the next election in 2015.

Is there a third way? A boost to public investment notionally financed through the private sector seems like a possible method of fiscal support. This would achieve the multiple aims of supporting growth in the near-term, enhancing the supply-side of the economy and keeping debt off the public sector’s balance sheet. Already, the government plans to guarantee £40bn of loans to finance infrastructure projects, with projects worth £10bn already under consideration. Similar schemes, such as privately-contracted road pricing schemes, might also be considered.

Otherwise, this leaves the British government looking like Mr Micawber, simply hoping that "something will turn up". There are two potential saviours. The government could lean on the Bank of England further, adapting its mandate to provide additional monetary support above and beyond that consistent with its inflation target. At the very least, further rounds of Quantitative Easing look likely. Alternatively, the rest of the world could come to the UK's rescue. A global recovery – particularly one that spreads to the eurozone – would provide a source of demand where currently there is none. Ironically, the UK public’s growing hostility towards the EU comes at a time when it needs Europe more than ever.

Dominic White is chief European economist and Richard Mylles is a political risk analyst at Absolute Strategy Research

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

Dominic White is chief European economist and Richard Mylles is a political risk analyst at Absolute Strategy Research

Photo: Getty
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Jeremy Corbyn sat down on train he claimed was full, Virgin says

The train company has pushed back against a viral video starring the Labour leader, in which he sat on the floor.

Seats were available on the train where Jeremy Corbyn was filmed sitting on the floor, Virgin Trains has said.

On 16 August, a freelance film-maker who has been following the Labour leader released a video which showed Corbyn talking about the problems of overcrowded trains.

“This is a problem that many passengers face every day, commuters and long-distance travellers. Today this train is completely ram-packed,” he said. Is it fair that I should upgrade my ticket whilst others who might not be able to afford such a luxury should have to sit on the floor? It’s their money I would be spending after all.”

Commentators quickly pointed out that he would not have been able to claim for a first-class upgrade, as expenses rules only permit standard-class travel. Also, campaign expenses cannot be claimed back from the taxpayer. 

Today, Virgin Trains released footage of the Labour leader walking past empty unreserved seats to film his video, which took half an hour, before walking back to take another unreserved seat.

"CCTV footage taken from the train on August 11 shows Mr Corbyn and his team walked past empty, unreserved seats in coach H before walking through the rest of the train to the far end, where his team sat on the floor and started filming.

"The same footage then shows Mr Corbyn returning to coach H and taking a seat there, with the help of the onboard crew, around 45 minutes into the journey and over two hours before the train reached Newcastle.

"Mr Corbyn’s team carried out their filming around 30 minutes into the journey. There were also additional empty seats on the train (the 11am departure from King’s Cross) which appear from CCTV to have been reserved but not taken, so they were also available for other passengers to sit on."

A Virgin spokesperson commented: “We have to take issue with the idea that Mr Corbyn wasn’t able to be seated on the service, as this clearly wasn’t the case.

A spokesman for the Corbyn campaign told BuzzFeed News that the footage was a “lie”, and that Corbyn had given up his seat for a woman to take his place, and that “other people” had also sat in the aisles.

Owen Smith, Corbyn's leadership rival, tried a joke:

But a passenger on the train supported Corbyn's version of events.

Both Virgin Trains and the Corbyn campaign have been contacted for further comment.

UPDATE 17:07

A spokesperson for the Jeremy for Labour campaign commented:

“When Jeremy boarded the train he was unable to find unreserved seats, so he sat with other passengers in the corridor who were also unable to find a seat. 

"Later in the journey, seats became available after a family were upgraded to first class, and Jeremy and the team he was travelling with were offered the seats by a very helpful member of staff.

"Passengers across Britain will have been in similar situations on overcrowded, expensive trains. That is why our policy to bring the trains back into public ownership, as part of a plan to rebuild and transform Britain, is so popular with passengers and rail workers.”

A few testimonies from passengers who had their photos taken with Corbyn on the floor can be found here