Will George Osborne and Ken Clarke see eye to eye on the big economic issues? So far, the record has been decidedly patchy. Indeed, in recent years it is hard to find anything they agree on.
Most people focus on Clarke’s cheerleading on Europe and his sympathy for VAT cuts. But there are plenty of other — arguably more important — issues over which the two have been at odds. I’ve found differences on Northern Rock, short-selling and matching Labour’s spending plans. I would not be surprised if there are more.
Osborne himself explained today why these judgement calls are important. “You move a shadow chancellor when they make big decisions that are wrong,” he told the BBC. “Our economic decisions have been right.”
But, if that is the case, why is he happy about the return of a veteran politician who has repeatedly contradicted him? Is the uncomfortable truth that Clarke was right more often than Osborne?
Take Northern Rock. Clarke was a vocal supporter of nationalisation, which he argued should have been done within days of the bank running into trouble. He said as much in the Commons:
Does the chancellor agree that, a few months ago, it was obvious that, in order to protect financial stability, it would be necessary to give guarantees to depositors and to achieve a quick, orderly work-out of the situation at minimum risk to taxpayers, in circumstances in which it has long been obvious that no purely private sector or commercial solution was going to be remotely possible? …. This is surely the result of dithering and delay, and of political considerations getting in the way of the speedy decision making and the orderly work-out that could have been achieved even before Christmas.
Now compare that to Osborne’s statement after the Rock was taken into public ownership.
This is the day when Labour’s reputation for economic competence died. Gordon Brown has dithered his way to the disaster of nationalisation….We will not back nationalisation. We will not help Gordon Brown take this country back to the 1970s.
Their respective positions on short selling are a bit more complicated, mainly because Osborne initially seemed to oppose a ban. But, broadly, there seems to be clear blue water between the two. Here is Clarke’s view, as expressed to the BBC:
To suddenly find scapegoats and say short-selling, which is, done properly, a perfectly reasonable market operation, is absurd. If you are going to find scapegoats find the right ones: the people in the banks who gave up traditional banking and listened to young rocket scientists who took the debt off the balance sheet and engaged in creating investment vehicles that nobody understood.
Now have a look at Osborne’s explanation of his position at party conference.
It wasn’t New Labour who was the first to say that the non doms should pay their fair share. And it wasn’t Conservatives who opposed a temporary ban on short selling. We know what Gordon Brown is trying to do. He wants to blame the right for the failures of the left.
Arguably Osborne’s biggest pre-crisis decision was pledging to match Labour’s spending plans, a totemic policy which has now been ditched. Did Clarke agree? Of course not. When Gordon Brown unveiled the spending plans in March 2007, Clarke argued Britain was running an unsustainable deficit and either needed to raise taxes or cut spending further.
The fact is that we are running an unstoppable deficit and he had to address it….So public spending as a proportion of GDP will at last start coming down again, though in fact, on the chancellor’s own figures, it will still be above 40 per cent at the end of the three-year period, so the reduction is not as drastic as it should probably be. I always aimed to get it below 40 per cent
For the record, this is how Osborne defended the policy (before David Cameron admitted it was a mistake that should have been dropped earlier).
We do have a choice.We can either: stick with our long term course; stick with the commitment I made to spending growth of 2.1 per cent for the coming three years…Or we can head off onto the margins of the political debate and reduce spending growth even further for the sake of a short term argument.
Whose judgement would you trust on the next big economic decision that comes along?
Jim Pickard
Kiran Stacey