'The message couldn't be clearer," said George Osborne last week. "If you find yourself on the wrong road, you take the first available exit." With these words, the shadow chancellor took his latest, tentative baby-step away from the never-never land inhabited by Britain's political classes and towards reality. To those of us outside the tent, Osborne's nose is just visible, the man soon to be running the UK's public finances now daring to sniff the true stench of this country's fiscal incontinence. But his mind and body, like that of the entire Tory leadership, remains firmly inside Westminster's comfort zone. The British political debate is shifting. But not nearly fast enough. The gilts market is watching very closely. If there isn't genuine action soon, or at least a rock solid and credible commitment to action, traders will lose patience and bid-up gilt yields sharply. In a crippling ripple effect, borrowing costs would spike right across the economy. Sterling could even collapse. By pussyfooting around, conveying only in nods and winks that eventually they'll tackle the world's largest deficit, our so-called leaders are playing with fire. If the market pulls the plug and a gilts strike ensues, then "UK insolvent" will hit the front page of every single newspaper in the world. Recovering from that would take a generation. This month's attempted "snow coup" against Gordon Brown, widely dismissed as a failure, was potentially of historic importance. After two former Cabinet ministers called for a ballot of Labour MPs on the leadership question, Chancellor Alistair Darling felt able to look a weakened Prime Minister in the eye. In the bravest act of his political life, Darling extracted a promise from Brown that Labour's upcoming election campaign won't hinge on pledging to outspend the Tories. This would mark an important reversal of recent political norms, the two main parties fighting it out on who can "most credibly and humanely" spend less, so making inroads into a deficit exceeding 12pc of GDP. Darling's rush of blood and Labour's volte-face may have launched a string of events that allows the UK to avoid a gilts meltdown. Such a benign scenario could, anyway, only play out if Brown keeps his word and shuts up about higher spending before he is put out to political seed. The choice Brown makes is crucial, despite his party having almost no chance of winning. That's because if Labour campaigns on "we will spend more", then the Tories won't have the guts to oppose them and say, "actually, that's wrong, we will spend less". The Tory high command will claim (again) that I'm being unfair. I think not. Osborne's "first exit" speech was clever. He gave the impression of finally junking Brown's Keynesian nonsense – "we need to keep on spending or we'll jeopardise recovery". But that was tosh. If the UK borrows at the current rate during the second half of 2010, the markets will declare us bust. That's obvious to anyone who looks at the books. It will be 1976 all over again, "cap-in-hand" to the IMF. What's really worrying is that, responding to a newly-emboldened Darling, who is now talking about "the toughest spending cuts for 20 years", Osborne simply repeated his pledge of several months ago – to save £7bn a year. That's risible. The UK is on course to borrow £200bn this year, next year and the year after that. Osborne's paltry £7bn saving doesn't kick in until the year after next. And look at his words: "We will need to make early in-year reductions in existing plans." Yes – "plans"! The ultimate weasel word! Darling raised the stakes – and the Tories blinked. The speech has generated some "tough George" headlines. The Tories will be happy with that. The audience that matters, though, is the thousands of institutional investors who daily decide if UK sovereign debt is a place to park their funds. The Bank of England is about to stop buying gilts with funny money. Our chaotic public finances will soon be exposed to "real investors". And they're not impressed by spin. The UK economy is on the cusp of a whole new world of pain, yet our leaders play mind games with those now only reluctantly supplying the cash that's standing between us and financial ruin. Have those at the top of the Tory party got the guts to grab this situation by the scruff of the neck and pull us back from the brink? Or did they come into politics just to deliver tricksey speeches?Sterling could collapse while our MPs are still pussyfooting around
Conservatives need to grab Britain's debt problem by the scruff of the neck and show Labour how to deal with a deficit
Saturday, 16 January 2010
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