My Short-Lived Truce with Slasher
Blanchflower, David, New Statesman (1996)
After my dalliance last week with the possibilities of a Labour-Liberal Democrat pact, which didn't happen, I decided it was time to rethink the coalition government's economic plans and, in particular, my view of George Osborne. It was time to declare a unilateral truce. I had been pretty tough on Osborne in the past. He was everyone's Chancellor now and would surely do what was in the best interests of the country. And there was a possibility--admittedly slim--that I had been wrong all along about Slasher George. I felt we should judge him on what he did. Note the past tense.
Osborne has a high-quality staff of civil servants at the Treasury, headed by the very able permanent secretary, Sir Nicholas Macpherson, and his astute chief economist, Dave Ramsden, who, I felt, would help ease him into the job. The practicalities of making policy are quite different from the theory: being a shadow is very different from being the real thing. Given this, I believed that Osborne's actions would have to be driven by economic events.
Time to stop calling him Slasher, which is not fitting for someone holding one of the great offices of state. Lack of experience, I told myself, doesn't mean our new Chancellor could not learn quickly. But he could always win the name back if he did something dumb. And he did so on the morning of Monday 17 May.
King of cuts
Beware central bankers bearing gifts: that is one of the first lessons for this new government. On 12 May, less than 24 hours after David Cameron had been installed as Prime Minister, the governor of the Bank of England, Mervyn King, gave his personal blessing to spending cuts in the first year of this parliament. Presumably, he did this to ingratiate himself with the new Chancellor, who has the power to sack him. (Incidentally, it is becoming clearer that Alistair Darling and Gordon Brown regretted appointing King for a second term.)
King was chairing a press conference to present the Monetary Policy Committee's inflation report when he took it upon himself to offer his own views on the need for slashing public spending in 2010. Such a personal take compromises the Bank's independence, especially as it is now clear that the MPC's members were not consulted before King opened his trap. Indeed, the MPC's report stated that "a significant fiscal consolidation is necessary in the medium term", but made no mention of a need for cuts in the short term.
King has a history of not consulting, or even briefing, the MPC on monetary policy matters. Remember that external members of the MPC, including myself, were not told about the emergency loans to Lloyds and the Royal Bank of Scotland in October and November 2008, a decision that was clearly relevant to monetary policy. It will be interesting to hear the views of individual MPC members on the appropriateness of malting cuts this year.
For the first 12 hours of the new government, there was an appreciation in the pound. But from the following morning, when King emphasised the increased risks to growth, sterling went into a downward tailspin. It traded at just over $1,505 and was down 4 per cent by early the following week. Not a great start. Over the first week of the coalition government, oil, commodity and equity prices have fallen by between 10 and 20 per cent because of fears of lower growth in the world economy. …