Labour has made George Osborne

by Jonathan Todd

The premise of the North Sea Scrolls, a concept album, is that the musician Luke Haines and the writer Andrew Mueller are given the scrolls, a document recounting a different version of history, by the actor Tony Allen. One track is called “I’m not the man you think I am Karen, I’m the actor Tony Allen”.

Too often Labour has failed to see the actor Tony Allen for what he really is. Nigel Farage, Boris Johnson and Alex Salmond all have Tony Allen type features. They bemuse Labour as much as they reach into parts of the electorate that Labour struggles to understand, never mind reach.

George Osborne is a different kind of Tony Allen. Farage et al are anti-politician politicians for our jaded times. Osborne, in contrast, was respected within the beltway before he was known beyond it, revered in SW1 when reviled outside it and held in ever higher regard in Westminster as his public esteem grows.

His stock ascends with economic good news, which presumes he is responsible, as chancellor, for these events. A relationship reinforced by Osborne’s opponents holding him accountable for everything that was previously going wrong.

It was precisely the chancellor’s fiercest critics, as the FT’s Chris Giles recently put it, who were themselves unable to distinguish between correlation and causation during the period of stagnation and have thereby legitimised Mr Osborne’s rhetorical victory lap. Of course, times remain tough for many. Because of this, equally obviously, Osborne would be daft to overdo this lap.

But the positive economic trajectory is clear. The more it gathers momentum, the more Osborne will be credited. Because Labour wanted him to have all the blame when things were going wrong, he’ll claim all the credit now that they are not.

As a parliamentary candidate at the last election, I tried to explain the fiscal deficit in terms of the global financial crisis. As much as the electorate were right to insist that Labour must take some responsibility for this deficit, the global financial crisis was far from irrelevant. It remained a factor in explaining GDP growth and the fiscal position beyond May 2010. But this was de-emphasised by Labour, as we sought to explain all in terms of “too far, too fast” cuts.

Osborne did cut too far and too fast, particularly into investment, as subsequent policy decisions by the government acknowledged. But structural factors – the global financial crisis – were relevant both prior to May 2010, when Labour pleaded them in mitigation, and after, when Labour focused on Osborne’s culpability.

These structural factors were always likely to become more benign – a Greek bond sale, for example, was recently oversubscribed by six times! And as they do so, improved UK economic performance is probable, irrespective of what Osborne does. As we look ahead to what is economically expected, further political consequences remain to play out.

The figure below, for example, shows how average earnings and CPI inflation have evolved over recent years, as well as how Oxford Economics expect them to evolve over the next few. These respected forecasters expect workers to become progressively better off in real terms (the gap between average earnings and CPI inflation), making arguments about a “cost of living crisis” harder to sustain.

If Osborne is responsible for everything, as Labour claimed after May 2010, will he be responsible for average wages exceeding CPI inflation by some margin in May 2015, as Oxford Economic expect?

As well as maintaining that a cost of living crisis persists, Labour has also tended to respond to recent GDP growth by not unreasonably raising concerns that this growth is largely dependent on spending by already indebted consumers, rather than exports and investment. The composition of GDP growth anticipated by Oxford Economics in coming years would also meet this criticism. See how the blue (investment) and white (net trade) expand from 2014 onward in the figure below.

If Osborne determines all matters economic, as Labour wanted us to believe after May 2010, will he also be answerable for GDP based on large increases in investment and exports in May 2015?

Labour’s North Sea scroll, our alternative history of recent years, would have involved Labour taking the responsibility due to us for the fiscal position that we bequeathed in May 2010. In so doing, both regaining forsaken trust in us as economic managers and avoiding having to take the whole responsibility for this fiscal position.

This trust would have been used to undermine Osborne, while acknowledging that the chancellor was both the victim (e.g. the Euro crisis) and the beneficiary (e.g. the abatement of this crisis) of circumstance.

Instead, as Labour failed to take our share of responsibility for the fiscal position of May 2010, many conclude that we’re fully responsible for this position, including the much larger part that should be put down to the global financial crisis. All of this bad news is attributed to Labour.

In turn, Osborne is held to account for everything bad and good in this parliament. And it seems like there may be more good to come. Which is a relief for the country. Labour’s shame is not to hope for anything else but to have made it too easy for Osborne to prosper from what, given the cyclical nature of capitalism, was always predictable.

Jonathan Todd is Labour Uncut’s Deputy Editor 

3 Responses to “Labour has made George Osborne”

  1. Robin Thorpe says:

    Jonathan, I appreciate that you are a trained economist and I am not, however I am under the impression that Osborne is, at least in part, responsible for the stagnation. The myopic policy of expansionary fiscal contraction served only to delay the recovery and has not delivered a rebalanced economy.

    I understand your wider point that Balls et al should have accepted more culpability for the overzealous spending, however the debate was rather opaque even for those interested in the detail.

    The main conclusion we can reach from this debacle, which you allude to, is that politicians of any colour do not have the degree of control or autonomy that they pretend to. The silly posturing of Budget Day confirms this with negligible changes to tax and spend dragged out over several hours with perhaps one or two major policy ideas. Perhaps both sides need to be more honest about what they can realistically achieve.

  2. Jonathan Todd says:

    Robin – Good comment, thank you.

    I agree with your conclusion:

    “Both sides need to be more honest about what they can realistically achieve.”

    While it can certainly be argued, as you say, that “Osborne is, at least in part, responsible for the stagnation”, my point is partly, as you also say, “politicians of any colour do not have the degree of control or autonomy that they pretend to”. And because Labour made so much of holding Osborne responsible for “the stagnation”, he’ll now feel entitled to take credit – unduly – for things turning around, as they were always likely to.

    Best, Jonathan

  3. Tafia says:

    Robin, I wouldn’t put to much credence on ‘trained economists’ – most of them missed 2007/2008 and the (very rare) ones that did see it were branded crackpots by the mainstream. What would you say about a doctor that didn’t notice a global epidemic?

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