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

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Scottish voters don't want hard Brexit - and they have a say in the future too

Leaving the single market is predicted to cost Scottish workers £2,000 a year,

After months of dithering, delaying and little more than scribbled notes in Downing Street we now know what Theresa May’s vision for a hard Brexit looks like. It is the clearest sign yet of just how far the Tories are willing to go to ignore the democratic will of the people of Scotland.  
 
The Tories want to take Scotland out of the single market - a market eight times bigger than the UK’s alone - which will cost Scotland 80,000 jobs and cut wages by £2,000 a year, according to the Fraser of Allander Institute.
 
And losing our place in the single market will not only affect Scotland's jobs but future investment too.
 
For example, retaining membership of, and tariff-free access to, the single market is crucial to sustainability and growth in Scotland’s rural economy.  Reverting to World Trade Organisation terms would open sections of our agricultural sector, such as cattle and sheep, up to significant risk. This is because we produce at prices above the world market price but are protected by the EU customs area.
 
The SNP raised the future of Scotland’s rural economy in the House of Commons yesterday as part of our Opposition Day Debate - not opposition for opposition’s sake, as the Prime Minister might say, but holding the UK Government to account on behalf of people living in Scotland.
 
The Prime Minister promised to share the UK Government’s Brexit proposals with Parliament so that MPs would have an opportunity to examine and debate them. But apparently we are to make do with reading about her 12-point plan in the national press.  This is unacceptable. Theresa May must ensure MPs have sufficient time to properly scrutinise these proposals.
 
It is welcome that Parliament will have a vote on the final Brexit dea,l but the Prime Minister has failed to provide clarity on how the voices of the devolved administrations will be represented in that vote.  To deny the elected representatives of the devolved nations a vote on the proposals, while giving one to the hundreds of unelected Lords and Ladies, highlights even further the democratic deficit Scotland faces at Westminster.  
 
The Scottish government is the only government to the UK to publish a comprehensive plan to keep Scotland in the single market - even if the rest of the UK leaves.
 
While the Prime Minister said she is willing to cooperate with devolved administrations, if she is arbitrarily ruling out membership of the single market, she is ignoring a key Scottish government priority.  Hardly the respect you might expect Scotland as an “equal partner” to receive. 
 
Scotland did not vote for these proposals - the UK government is playing to the tune of the hard-right of the Tory party, and it is no surprise to see that yesterday’s speech has delighted those on the far-right.
 
If the Tories insist on imposing a hard Brexit and refuse to listen to Scotland’s clear wishes, then the people of Scotland have the right to consider what sort of future they want.
 
SNP MPs will ensure that Scotland’s voice is heard at Westminster and do everything in our power to ensure that Scotland is protected from the Tory hard Brexit. 

 

Angus Robertson is the SNP MP for Moray, the SNP depute leader and Westminster group leader.