That’s an interesting development, which I have not heard of yet but can imagine to be true. The ‘Darling Plan’, let’s not forget, involves huge cuts to public spending and will be damaging to the country’s economy but is certainly preferable to the economic sado-masochism proposed by Gideon and co.

However, I think it does benefit Labour – the precious mantle of ‘economic competence’ would be reclaimed if the Tories backtrack on their “everything is much worse than we anticipated” message which they have been saying since the election. After campaigning on cutting the defecit harder and faster than Labour, to backtrack on this and broadly accept what was Labours defecit reduction plan would give Labour the chance to defend their record and attack the Tories.

The big winners could potentially be the Lib Dems, however, by making this out as due to their ‘restraining influence’.

Whether it happens remains to be seen, I can imagine it could be true due to, you point out, the costs of cutting too quick (cancelled contracts, rising benefit payments etc) would create a false economy. But, on the other hand, the Tories have pinned their colours quite publicly and strongly to cutting quick – do they have the political capital to back down on this central aspect of their narrative?

One hilarious consequence of his would be what the Lib Dems would do.

In May, they changed their policy and Clegg claimed that he had believed all along that bigger, faster cuts were needed. If the FT is right, it might be that come October, Clegg has to claim that the savage cuts which he supported aren’t needed, and actually he supports the pace of cuts proposed by Labour. A humiliation too far?

The govt are denying this story, but it would not surprise me. I have been suspicious from the moment they talked about 40% cuts in department budgets that this was a giant bullshit exercise in raising expectations only to have the cuts turn out to be much lower so that all the media will say……..”Not so bad after all”

If it turns out to be true then we will see that the tories hot air complaining about govt spin under Labour, was all for show. Once they got into govt they are spinning like tops too.

The only possible response to this is : hahahahahahaha

Though you know perfectly well that the difference between Darling’s plans and Osborne’s is very small anyway.

Don, you might be pointing at the Lib Dems, but it’s the Tories who will have the last laugh on this. Take it lightly at your peril – the Tories have already (successfully) made it look like they’re willing to “hammer the rich”, and if they slow the pace of cuts, then Labour will have nothing to attack the Tories over.

4

Tory troll defends tory lies after having defended big cuts for weeks. Tory trolls will defend anything tories say.

No surprise there then.

As Sally says above, and as predicted on Better Nation, it has to be said:
http://www.betternation.org/2010/10/smoke-and-mirrors-on-the-cuts/

I don’t see how the Tories could spin this positively. Basically they would be admitting their economic incompetence. And if their line were to be that the they are following Labour’s deficit reduction strategy but with less tax rises and higher spending cuts, we already knew that this would be the case. Just as in the LibDem case they wanted all of the burden to fall on spending cuts, and non on tax rises.

If they were to do this, then Labour will have won the economic argument game,set, and match.

If they now want merely to reduce the deficit before 2015 rather than eliminate it – as they’ve been claiming for months – how could they lay any claim to economic competence? What new ‘new evidence’ will they claim this time?

“If they were to do this, then Labour will have won the economic argument game,set, and match.”

Hahaha – other than all the candidates in the leadership campaign spent all their time denouncing any cuts and completely disowning Darling’s last budget!

If they now want merely to reduce the deficit before 2015 rather than eliminate it – as they’ve been claiming for months – how could they lay any claim to economic competence? What new ‘new evidence’ will they claim this time?

Does no-one ever read the links that form the basis for these stories? The story that the FT are running (which has, for what it’s worth, been denied by the Treasury) is that the profile of spending cuts may be shifted to later in the parliament, because doing so would be cheaper and easier. Two examples it gives are the cost of triggering break clauses in contracts, and the costs of redundancies.

For example, if a contract is due to expire in 2013, but could be ended earlier on payment of a penalty, then it’s probably going to be cheaper to wait until 2013 and let it expire then. Equally, it’d be cheaper to reduce public sector headcount by natural wastage than to fire lots of them. In each case, the ‘cut’ will fall in 2013 and not 2011.

None of that means, however, that the Govt are rowing back on the scale of cuts to be introduced. What it means is that the timing of some of the cuts may not have been finally settled yet.

The Cameron/Osborne/Clegg “there is no alternative” line has been based around a claim that without rapid action now the bond markets might panic, the UK might get downgraded and borrowing costs would spiral.

Interestingly enough, the FT pieces quotes Ben Broadbent of GS making the opposite case.

Aaargh! It’s not the opposite case at all! It’s a re-inforcement of that case. The coalition argument (briefly) is that without a stringent and credible policy of fiscal retrenchment, markets will require a higher rate for Govt debt. Labour have argued that no such policy is required, and that an economic downturn should be managed by greater fiscal stimulus.

What Broadbent is saying is that, provided there are sound reasons for the timing of specific cuts being delayed (such as break clauses or redundancy payments), markets won’t be worried, as the stringent credible fiscal policy remains in place. What would worry markets is if the coalition were to reduce their plans for cuts on political grounds – or in other words move towards adopting Labour’s old plan, such as it was.

12,

“The coalition argument (briefly) is that without a stringent and credible policy of fiscal retrenchment, markets will require a higher rate for Govt debt. Labour have argued that no such policy is required”

And the Darling plan was, what exactly?

Equally I have seen no evidence of panic in the gilt market, none.

But Tim J, to the wider public it will look as though they are rowing back. Labour will say that this vindicates their position. The cuts may be necessary, but the timing isn’t. That has been the basic Labour message all along.

And the Darling plan was, what exactly?

Who cares? Not only are Labour not in power, but Darling isn’t even in the shadow cabinet, and the new Labour leader views his policy as a vague ‘starting point’ for what Labour should advocate now. But then, who cares what Labour advocate? It’s as relevant as Stephen Dorrell’s education policy in 1998.

Equally I have seen no evidence of panic in the gilt market, none.

I know. Excellent proof that Osborne’s policies are working. That this was also the case before the election is evidence that markets had priced in a Tory victory. Keeping cherries in the fridge makes a perfect elephant repellent.

15,

And how do you explain the move in US Treasuries, which is the same as the move in gilts?

This is nothing to do with the government.

http://www.leftfootforward.org/2010/09/19105/

But Tim J, to the wider public it will look as though they are rowing back. Labour will say that this vindicates their position. The cuts may be necessary, but the timing isn’t. That has been the basic Labour message all along.

I don’t think this will happen. The CSR will set out departmental cuts over the entire parliament, and there’s no suggestion that the scale of cuts is being affected. Labour have never argued that cuts on the scale proposed by the Govt are necessary, and the only economic argument that’s been audible over the summer has been Ed Balls’s argument that cuts are unnecessary full stop, as a return to growth policy makes them irrelevant.

Wait, so if the Tories basically adopt Darling’s plan then Labour need to think of a new one?

Isn’t that opposition for opposition’s sake?

http://libertarianbulldog.blogspot.com/2010/10/opposition-for-oppositions-sake.html

18/

No, Osborne will do far more through welfare cuts than Darling would have done.

This is nothing to do with the government.

Gilt prices are nothing to do with Government policy? An intriguing thesis. So, if Britain had substantially increased borrowing to pay for a fiscal stimulus, to say 20% of GDP, that would have had no effect on gilts? Well, it’s a theory.

18/

And like I say, I’d welcome a slowing of the pace of reduction.

crikey – this is big news, and strategic to boot. But it is nothing to worry about I’m sure; if Labour’s deficit plan was far more than politicking it won’t have to change significantly on the eve of the spending review

“How do Labour respond?”

The sensible thing to do is say “see? we told you so – it is far more difficult to cut spending. You also should consider the fiscal effects of doing X, Y and Z”

Then you release an alternative budget containing the cuts you would make, and revanue raising measures you would make, alongside a longer term economic plan (it would be nice if this included a strategy for weaning the UK off its addiction to the financial services industry – but we can’t have everything) You get a senior economist to write this longer term plan, and provide quotes for your press release – (so libertarians on the internet can make fools of themselves when they call you economically illiterate) and then make the rhetorical and political point about how your plans help ordinary people not people due to inherit millions.

No Tim J, Balls has never said there should be no cuts, he has, however refused to say where the cuts should be. Smart opposition strategy, imo.

@24 And highly hypocritical and irresponsible, to attack others for making cuts without saying where yours would fall, imo.

In the keynote Balls ‘alternative economic policy’ speech he said that any attempt to reduce the deficit should only be after a return to strong growth. He also made the traditional Labour error (though for someone who claims to have a good economic and historical knowledge, this error is painfully close to a flat-out untruth) of confusing debt and deficit:

Just think if Clement Attlee’s government at the end of the second world war had decided that the first priority was to reduce the debts built up during the second world war – there would have been no money to fund the creation of the NHS, no money to rebuild the railways and housing destroyed in the Blitz, no money to fund the expansion of the welfare state.

All the things the Labour movement is proudest of about that post-war government would have been jettisoned.

Fine words, but their impact is somewhat demolished when you realise that the Atlee Government ran large budget surpluses to reduce National debt and control demand. Anyone who argues that there is no need to reduce the deficit because debt is lower than in 1945 and they didn’t worry should have their historical licence removed.

26 – I have also wondered to what extent a lower tax burden in the past made higher taxes to pay off the debt more palatable.

No blanco libre. You wait until the government show their hand, before you show yours. That’s what smart opposition is.

And Tim J, but under Atlee borrowing increased for for the first couple of years of his administration, to well over 200% of gdp. Why, because it was an economic necessity.

And Tim J, but under Atlee borrowing increased for for the first couple of years of his administration, to well over 200% of gdp. Why, because it was an economic necessity.

Yup, Atlee reduced the budget deficit so sharply that he turned it into an overall surplus in only two years. Quite an achievement really, and one that puts the Coalition’s aim to reduce a smaller deficit by less over a much longer timeframe into a proper historical perspective.

29/

To be fair, Britain had just stopped fighting a world war. Defence spending as a % of GDP fell from over 40% in 1945 to around 10% by 1951.

To be fair, Britain had just stopped fighting a world war. Defence spending as a % of GDP fell from over 40% in 1945 to around 10% by 1951

Fair point, although it was more like 20% in ’51 thanks to the Korean War. But the Atlee Govt was very big on Austerity – look at the Cripps ’48 budget. They were obsessed with getting spending down and paying down debt. When Labour politicians now say that Atlee didn’t worry about national debt, but concentrated on increasing public spending, a little piece of me dies.

There’s nothing magical about defence spending the cutting back of which has any less of a macro effect than the cutting of any other category of spending though, is there?

31,

Not that useful for today’s debate but…

In the interest of historical accuracy, Dalton was an expansionary Chancellor 1945-47, whilst Cripps and then Gaitskell were both associated with austerity.

But the austerity was driven by the need to reduce a balance of payments deficit (and in particular the “dollar gap”) rather than because of a concern with the national debt/deficit.

(And defence spending hit 12% of GDP in 1951/52).

32,

There is if you’re spending it all abroad (like in WW2), no domestic multiplier and a big balance of payments hit. Much easier to cut than cutting domestically (in terms of macro effect).

If this is true then it’s egg in the Tories face and disaster for the Libs. The Libs or Clegg will be seen as a man who is in persuit of office only rather than political principles.

But the austerity was driven by the need to reduce a balance of payments deficit (and in particular the “dollar gap”) rather than because of a concern with the national debt/deficit.

Up to a point. The balance of payments dollar-gap problem was chiefly addressed by demand management (and heavy duty management at that: rationing and wage restrictions) and promotion of the sterling area. The stiff rises in taxation (including a capital levy that was effectively a confiscation of investment assets) and cuts in expenditure were explicitly stated as being designed to reduce the national debt.

Austerity 1940s style has to be looked at in two ways… Although this really has drifted off the point.

“The stiff rises in taxation”

Which we haven’t really had proposed by the tories really.

Duncan – this is not surprising at all! When you were touting the Darling plan with the point that the escape hatch was its big selling point, I then said there was nothing stopping Osborne from also doing the same.

Which is why the Darling plan wasn’t amazing at all.

More than anything, this signals to me that the Ed Balls approach is the best one, because it takes the argument further and isn’t just reliant on an escape hatch.

Shorter Tim Jerk……… “all tory lies are good lies, and I will defend them all.”

When is the fat lazy Left at least going to try to get its head round coalition politics? Its meant to be the movement of the intellectuals but its shown all the brilliance of a headless chicken. We are in a new paradigm. Cameron is running circles round us.

Whoever seriously believed Osborne was going to implement these gargantuan cuts. He’s not crazy. Hung parliament politics mean you can face a general election any second. But he’s bigged it up – and guess what, the Left have been stupid enough to believe him and have bigged it up themselves. So now he – oh so predictably – says its not going to be armageddon – its going to be civilized and gradual and the electorate are going to be loving him and returning to the Lib Dems and where is the Left going to be – stamping its feet because it was outmanoeuvred.

Just like it was outmanoeuvred on CBs. The Left is left supporting state moolah for rich guys while – according to a You Guv poll published on PB – 83% of the electorate don’t support state moolah for the wealthy. My wife of immaculate working class background and Labour voting history is going round proclaiming she doesn’t believe in it. then when we get on to serious cuts for ordinary people – the Coalition will be able to point at CB and say its fair – the rich are making their sacrifices too.

The Left hasn’t even started to think about the subtleties and treacheries of Coalition Politics. We are political dinosaurs.

“Cameron is running circles round us.”

No, he is running circles round the Lie Dems. Which if you hadn’t noticed is part of the coalition.

The Lie Dems just spent a week at their jolly by the sea telling everybody why the cuts had to be so deep.

Errr johnf, sally – some of us are trying to have an intellectual discussion here…?

I think Labour do need to find something better than the Darling plan but then I felt that the balance of cuts vs tax increases proposed over-emphasised cuts. Like many New Labour policies, it gave license to the Tories to be more extreme than they might have otherwise.

Importantly, even if the Coalition decide as the article suggests the detail of where the cuts fall will likely prove the ideological nature of Coalition policy.

“some of us are trying to have an intellectual discussion here…?”

Well I’m not stopping you Sunny.

This effectively appears to be the Plan B for deficit reduction. Quite a few people have wondered whether Mr Osborne would still try to follow the same budget plans if growth disappointed. If there is a change of plan I would say they are implicitly accepting that growth over the next few years will be lower than they expected. Therefore, to follow the same deficit reduction plans with lower growth might push the economy to a lower growth trajectory and actually increase the deficit.

Furthermore, the Coalition plans depend for success on the current account and an improvement in the British net exports position. If there is not an increase in net exports then the private sector must increase their debts for the government to reduce the deficit. Who knows what the household and corporate sector will do over the next few years. However, there is not much sign of them increasing their leverage. Therefore, if the government went ahead with their spending reduction plans without an increase in private sector leverage or an improved current account the result would be a large increase in unemployment. Thereby undermining the deficit reduction. With most of our trading partners trying to follow the same policy they probably now implicitly expect exports to disappoint. Hence, the Plan B.

They do have quite a bit of wriggle room because borrowing this year is heading for at least a 10 billion undershoot. Moreover, they should suspend the VAT rise due in January. It is unnecessary and is only there to finance a tax bribe before the next election.

@40 johnf

I find it impossible to believe that someone as dim as Osborne (remember, they had to hide him during the election campaign because he was such a liability) has the subtlety you suggest. In fact I don’t think I’ve seen politicians of any sort have such skills, politics today is too complex and fast moving.

The Child Benefit announcement was meant to be a tough-but-fair soundbite for Osborne’s speech but because they hadn’t thought it through it blew up big time. Cameron’s desperate modifications weren’t Machiavellian brilliance, they were a desperate attempt at damage limitation.

Finally, if you think the cuts being made and those being planned are “civilised and gradual” you really ought to get out more.

Sunny,

Some thoughts.

We need to achieve a few things here -

- A strategy which isn’t just “secretly hope for a double dip”. I think we may get a double dip, we will certainly get poor growth.

- To show we’d do things differently

- To be realistic and acknowledge that there is a structural deficit that has to be dealt with.

We need to avoid being in a situation where we are proposing lots of tax increases and mainly arguing for more welfare increases. (Right as that position often is, they’d slaughter us).

Most of all we need to move the focus onto the need for full employment. Jobs deficit.

I can envisage some sort of plan for dealing with the structural deficit over 5/6 years (which retains the core of Darling’s “halve the cyclical deficit over 4 yrs” but allows more flexibility.

Another thing we need to avoid is doing a shadow CSR. Too much of a hostage to fortune – and not something oppositions typically are required to do.

I’ll try and write something up over the weekend.

45 ” If there is a change of plan I would say they are implicitly accepting that growth over the next few years will be lower than they expected. Therefore, to follow the same deficit reduction plans with lower growth might push the economy to a lower growth trajectory and actually increase the deficit. ”

Yup

Seeing as there is a thread on this site at the moment called “employers say cuts arriving at the wrong time” it would seem that the tories are now facing up to their idocy.

How does this disrupt Labour? It gives Labour the chance to point out that we were right all along, that a lot of the announced cuts were unnecessary and suggest that the Tories are disappointed that they can’t be too cavalier because slash-and-burn is what they’d love to do anyway.

Indeed, it’s the Lib Dems who would look stupid. All the way up to the election they said not to cut so far so fast. Then they changed their mind quicker than you can say “Cabinet Position”. If this turns out to be true, they’ll be in the position of having to change their minds again, and ‘St Vince’ will look like a right vacillating prune.

Still, skewering the Lib Dems will be what the Tories will be secretly trying to do for the next few years, because they know that there’s no hope of a solid majority for them if the yellows are still credible.

All the talk is still of cuts. Still no detail, and conspicuously absent from Tory conference, of how to generate growth. The greenest government ever? No investment in green economy!

@16 Duncan

Seriously, do some market related research for once

US Treasurys are rallying because the fed is about to monetize about a third of all issuance. By buying it. No wonder they are rallying.

Tyler @51,

They’ve been rallying since March.

How’s your investment strategy working out?

http://tdsays.blogspot.com/2010/04/one-where-tyler-predicts-future.html