Sunday, July 17, 2016
Osborne: much better than his critics said, but plenty of unfinished business
Posted by David Smith at 09:00 AM
Category: David Smith's other articles


My regular column is available to subscribers on This is an excerpt.

So no more George Osborne. Hello Philip Hammond. But 0.5% Bank rate, the record low rate that lasted for the whole of Osborne’s chancellorship, lives to fight another day. I’ll come on in a moment to the question of whether the Bank’s decision not to cut on Thursday was the right thing to do.

On Osborne, the game was up for him in the early hours of Friday June 24, though he made a spirited effort to demonstrate he was irreplaceable in the days that followed. Sadly, none of us are.

I’d like to say I’ll miss my fireside chats with the former chancellor at No.11. I’d like to say it but I can’t. They never happened, and they won’t now.

I do, however, feel quite a lot of sympathy for him. The referendum was David Cameron’s idea, not his. No chancellor, and certainly not Osborne, would have taken the risk. As it is, Cameron left office with the cheers of the House of Commons ringing in his ears, while Osborne left by the back door of 10 Downing Street.

Now it is over, how should we view the Osborne supremacy? Was he a good chancellor? There have been few recent chancellors who have divided opinion more. My view is that he was not as bad as his critics alleged, nor quite as good as he and his supporters thought.

His own parting shot, that he hoped he had left the economy in a better state than he found it, can be answered in the affirmative. The recovery got stronger – latterly becoming the strongest in the G7 – and the employment rate rose to record levels. Never before has a higher percentage of the 16-64 workforce (74.2%) been in work. In 2010 Labour said the private sector would never replace the public sector jobs being cut. It did, several times over.

The strength of employment was in contrast to the weakness of wages, damagingly so during the bouts of high inflation, notably in 2011, during his chancellorship. Collectively, people priced themselves into jobs. Osborne’s last big announcement, the introduction of the national living wage, was an attempt to break that low-wage cycle.

Despite weak wages, Osborne presided over a post-crisis decline in inequality – not that you would notice from the debate – and an increase in the share of income tax paid by those at the top of the scale.

His big ambitions have, however, mainly been unachieved. The budget deficit, public sector net borrowing, was £75bn, 4% of gross domestic product, in 2015-16, his last full year as chancellor. That is better than the level of borrowing he inherited, which was more than 10% of GDP, but is a long way from job done. The budget surplus he coveted will not even be a target any more.

His “march of the makers” – a recovery built on manufacturing – did not happen; industry remains below pre-crisis levels. His ambition of doubling exports by 2020 will not happen; it will be missed by a huge margin. The Northern Powerhouse is still a work in progress. Pension reform is incomplete.

But Osborne was more pragmatic than his critics allow; some of his missed deficit targets were unintended, but some of it was because, as an austerity chancellor, he also prioritised cuts in personal and corporate taxes. It would have been possible to eliminate the deficit but the past few years would have been far grimmer. As it was, he managed to maintain the confidence of the markets while presiding over a slower pace of deficit reduction than he intended.

Reducing the deficit was, however, important, and lesser chancellors would have been diverted from the task much more than he was. A deficit of 4% of GDP is still too high, but entering this period of post-Brexit economic uncertainty with it much higher would have increased Britain’s vulnerability. Even so, Britain’s sovereign debt rating has been downgraded since the referendum.

His was, however, a very messy chancellorship. His last budget, in March, contained more individual measures than anybody can remember, and was followed by the forced abandonment of its two headline announcements; disability cuts and turning all schools into academies. His own joke about the 5:2 diet, that in two out of every five budgets he had to eat his own words, was a little too close to the truth. Having mocked Gordon Brown for making the tax system much more complex, he leaves it even more so. History will remember him as a chancellor who took over in a crisis and helped steer the country out of it. It is unlikely to remember him as a great reformer.

How will history judge Mark Carney’s period as Bank governor? Thursday’s decision to leave rates on hold, albeit with what looks like a pretty clear promise to make a move next month, was a sensible one. The monetary policy committee (MPC) fears that that the problems in commercial property and what looks like a sharp slowdown in the housing market presage a wider slowdown in the economy.

But it wants to have a new, fully-worked forecast before deciding on its course of action, and it will have that in three weeks’ time. MPC members have discussed “various possible packages of measures”, which they are ready to unleash next month. It will be surprising if that does not include a cut in rates.

And what about Philip Hammond? Had the Tories won an outright majority in 2010 he would have been Treasury chief secretary, the post he had shadowed in opposition. He would have been responsible for controlling/cutting public spending.

As it is, his route to the Treasury has been a circuitous one, via transport secretary, defence secretary and foreign secretary. In all those roles he has been quietly competent, never making too much of a fuss; the archetypal safe pair of hands.

That is not a bad quality for a chancellor, though the same was said of Alistair Darling when he was appointed in June 2007, and his stint at the Treasury over the following three years was anything but quiet; it was one of the scariest for decades, though Darling did well with the hand he was dealt.

The challenges faced by Hammond will be different ones. And, while most people I have come across have greeted his appointment without a huge amount of enthusiasm, an important part of any chancellor’s duties is to offer reassurance. He will probably be quite good at that.

It may also be that, partly as a result of Brexit and the need to negotiate new arrangements for Britain, and partly because of the new prime minister’s declared intent to pursue a wider economic agenda, run from Downing Street, that the Treasury is less powerful than in the recent past.

In the days of Gordon Brown, and more recently in the case of Osborne, the Treasury has called all the shots. It will still be one of the biggest beasts in the Whitehall jungle but it may have to get used to a slightly more truncated role. That may be no bad thing.