Monday, November 17, 2008

 

Government and Opposition Gambling With Our Economic Future

Now and again politics produces a situation where one has to pinch oneself to gain reassurance that this is not a dream. Having established his reputation through the shallow-end virtues of caution and prudence, Gordon Brown has suddenly plunged into the deep-end with promises of unfunded tax cuts to provide the 'fiscal stimulus' we need to kick-start our economy. As for the Tories? Well, they are not so sure what they want to do- not even sure they want to continue with Osborne as Shadow Chancellor- but they seem to prefer funded tax cuts so that expenditure is adjusted to make room for the cuts. Writing yesterday, Andrew Rawnsley argues that Brown's gamble is likely to be greater than George's.

Like City traders they are both buying 'futures'; gambling on outcomes. Rawnsley puts it this way:

Mr Osborne will have made the wrong bet if Mr Brown comes out of this looking like the bold saviour of the economy. The Prime Minister's reward will be the gratitude of the voters and a juicy big split in the Conservative party.

But

The big peril of cutting taxes while boosting spending is that this shatters confidence that Britain can pay its debts. Sterling has already tumbled by more than 25 per cent against the dollar in less than three months. The pound is now at an all-time low against the euro.

Meanwhile the benefits of offering tax cuts are possibly reflected in poll results reported in the ST yesterday showing Labour catching up with the Conservatives in a way which always seems to spook their high command. From being some 20 points ahead a few weeks back, the Tories' lead is now only 5 points. This will bring comfort to Labour, but Rawnsley's analysis suggests it might be shortlived. It could be that the markets will pronounce Gordon's gamble a loser This is a high stakes game being played with our economy:

The Prime Minister has to take a double-or-quits gamble. The Tories do not. George Osborne's critics are only thinking eight days ahead. He is trying to see 18 months ahead. That makes the Shadow Chancellor smarter than those Tories who want to toss him overboard.

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