Why the world envies Mr Osborne

  • 3 October 2011
  • From the section Business
  • comments
George Osborne
Mr Osborne's freedom to make economic decisions should give him much to smile about

You might have missed it: there's been a lot going on lately. But the UK is back on top.

The government's economic policies over the past year have made it the envy of the free world.

No, I'm not paraphrasing Mr Osborne's speech at the Conservative Party conference.

In fact, party conferences are not a great demonstration of my point. But you have to admit, the more you look at the way the US and the eurozone have confronted their economic problems lately, the better the UK looks.

It's not the content of the government's policies that has set the UK apart; it is the power of Britain's executive branch, and the fact that the government and its central bank have a transparent, fully accountable relationship with one another.

Neither the US nor the eurozone can say the same. If they could, investors would now be a lot less worried about where their economies are going.

Think about it. If Mr Osborne decides to freeze council tax for another year, he can just announce it. When he wanted to raise VAT - he could do that too.

The chancellor may not see it that way. He probably feels he has a big fight on his hands when he decides to do anything. But those are internal disputes.

He doesn't have to beg Parliament to implement even a fraction of his Budget proposals - as President Obama does. Nor does he have to get 16 other countries to agree with him, as his European colleagues do.

Central banks

Just as important, though Mr Osborne might not always get an easy ride with Mervyn King, at least both sides know where they stand, and everyone has a fair idea where the Bank of England's responsibilities start and end.

As we know, the relationship between the eurozone governments and the European Central Bank is much more fraught, with disastrous consequences for the management of the crisis.

True the US central bank, the Federal Reserve, is in a much stronger position. But even the Fed has found the going more difficult, since its extraordinary interventions to support the banking system and the economy from 2008 onwards.

Senior figures in Congress have been questioning its every move and threatening to take more formal legislative control over its actions. Arguably, that is because the Fed is perceived to be doing the Treasury's bidding, and there is little in the statute books to suggest otherwise.

In the next few months, the UK may have to revisit the relationship between monetary and fiscal policy. The "outside of the box" proposals to support lending and investment that the likes of Adam Posen have discussed would inevitably muddy the dividing line between government and central bank.

But, as with quantitative easing itself, the authorities would at least be innovating from a position of strength; the institutional arrangements underpinning their relationship are strong and fairly uncontroversial.

Ed Balls would say that Mr Osborne is throwing away these advantages, by pursuing the wrong policies. That's for you to decide.

But when ratings agencies look at the UK they don't only see the current set of economic policies, they also see that the chancellor could easily reverse them - if necessary, in a matter of days.

If the chancellor opted for the celebrated Plan B, it could be up and running next week, with barely a parliamentary vote. That sets him apart from many of his international colleagues.

Chinese interest

It's no surprise, then, that Chinese officials considering what a Chinese democracy might ultimately look like are said to be increasingly enthralled by the UK approach. I'm told that the Foreign Office regularly receives requests and visits from the Chinese, wanting to hear more about the "Westminster model".

They see President Obama's Budget announced "dead on arrival" in Congress, and they see our chancellor deliver his Budget to a rapt Parliament, and they know which model would suit them better.

Naturally, such a mighty executive is not to everyone's taste. There's a reason why the Founding Fathers in America wanted all those checks and balances on executive power. But at times of crisis, it sure comes in handy.

David Cameron and George Osborne take their seats at international summits these days, you can bet that most of the other men and women around the table wish they were more like the UK.