Thumbs up from the IMF
It couldn't be better timing for George Osborne. On the day that Labour's old and new guard debate just how outraged to be about the government's deficit plans, the IMF has given them a resounding thumbs up.
IMF staff come over to London every year to give the country an economic health check. Here are the sentences from the concluding report that we can expect Mr Osborne to be returning to in the coming weeks:
"The government's strong and credible multi-year fiscal deficit reduction plan is essential to ensure debt sustainability. The plan greatly reduces the risk of a costly loss of confidence in public finances and supports a balanced recovery. Fiscal tightening will dampen short-term growth but not stop it as other sectors of the economy emerge as drivers of recovery, supported by continued monetary stimulus."
In the body of the report, the staff warm to their theme, and make clear that they consider Mr Osborne's plans an improvement on Alistair Darling's. Specifically, they say, with surprisingly few caveats, that the benefits of the tougher deficit plan:
"outweigh the expected costs in terms of adverse effects on near-term growth. Indeed, market reaction to the adjustment plan has been positive."
In other words, the coalition have taken an economic risk with their approach, but the IMF thinks it's a risk worth taking. Like Mr Osborne, they also believe that the "automatic stabilisers" - the automatic increase in spending, and fall in tax revenues, that occurs with a slowdown in the economy - are an adequate Plan B, assuming that the Bank of England is able to keep rates low. According to the report:
"this provides an important safeguard even as structural consolidation continues."
It is safe to say that Ed Balls will not change his mind on the basis of reading this report. Neither - I suspect - will anyone else appearing on the stage in Manchester this week. But in the public relations battle over the deficit, Mr Osborne's team has won an important, and surprisingly unqualified, endorsement.
Update 1705: You might deduce from the chancellor's response to this report that the UK was previously on the IMF equivalent to the naughty step. That is not quite right. The last time that the staff carried out a similar exercise, in May 2009, their report was quite low-key in its criticism of the government, which was mixed with a fair amount of praise.
It was highly positive about the government's response to the crisis, and accepted that the rise in borrowing had been a more or less inevitable consequence of the crisis.
However, the staff emphasised that confidence in the sustainability of the public finances would be crucial to the government's plans - and that this "would be strengthened" by "targeting a more ambitious medium-term fiscal adjustment path for implementation once the economic recovery is established. The focus of this adjustment profile should be to put public debt on a firmly downward path faster than envisaged in the 2009 Budget."
The report also said that the government should be clearer about what it was going to cut - advice it explicitly chose not to follow when it decided to postpone the comprehensive spending review. The Fund's criticism was repeated in later reports about the global economy.
So yes, the IMF is giving Mr Osborne higher marks than Mr Darling. But it had never suggested that he was sending the UK over a cliff.