As ever, George Osborne summoned a special chutzpah for his speech to the Conservative conference. In the midst of a growth crisis, he warned that “we should not talk ourselves into something worse”, as if he had never spread the myth that Britain was on the “brink of bankruptcy”. He insisted that the government could not afford to borrow a billion more to stimulate the economy, forgetting that he announced £46bn of extra borrowing at the Budget. And he hailed the “precious stability” that his deficit reduction plan had brought, failing to mention that it left us with a lower growth rate than every G7 country except Japan.
“Don’t tell me this government isn’t going for growth,” the Chancellor snapped, taking a swipe at Labour and Conservative critics alike. But there were few signs of a change of gear. Osborne’s response to the growth crisis? A re-announced £805m council tax freeze that will do nothing to cancel the damage wrought by his £12bn VAT rise.
The Chancellor’s wager is that loose monetary policy (interest rates and the exchange rate) will compensate for tight fiscal policy (spending cuts and tax rises). He was clearer than ever on this point today. “We are fiscal conservatives and monetary activists,” he declared.
The biggest difficulty for the government is that Osborne has few monetary weapons at his disposal. Interest rates are already at record lows and the exchange rate has fallen sharply since the crisis began in 2008. By contrast, after the savage cuts of the 1981 Budget, Geoffrey Howe was able to loosen the money supply by cutting interest rates by 2 per cent. Insofar as the government has a plan B, it is for further quantitative easing (QE). But with the cost of unsecured loans significantly higher than before the crisis, it is far from certain that another monetary injection will have the desired effect. Today, Osborne promised to begin “credit easing” – government lending to small businesses – a tacit admission that Project Merlin – the government’s much-vaunted agreement with the banks – has failed.
It was telling that the most effective passages in his speech were not on the economy but on politics. Like his predecessor, the Chancellor is never happier than when identifying a dividing line (see Rafael’s blog for more on this) or a partisan jibe. He quipped that Labour had ceased to be a “producer or a predator”, one of the best attack lines of the conference season. He rebuked Vince Cable, who described some Tories as the “ideological descendants of those who sent children up chimneys”, by noting that it was a Conservative who abolished the practice and that the Liberals objected. And he described Manchester as the city where Rutherford split the atom and the Miliband brothers split the Labour Party (a decent gag by his standards).
Unlike Cable, who spoke only of “grey skies” in his speech, Osborne ended by turning his gaze to the sunlit uplands, “the calmer, brighter seas beyond”. Channeling Jim Morrison, he insisted that we would “ride out the storm together”. One can only respond, not with your plan, we won’t.