Just how flexible is Plan A?

 
Danny Alexander Mr Alexander set out the "next steps in our plan for growth" in his conference speech on Sunday

"We're sticking to our plans across the board."

That's how the chief secretary to the Treasury slapped down the idea, coming from some of his cabinet colleagues, that he and the chancellor should increase the budget for capital spending to help stimulate growth.

At a time when the markets are asking searching questions about the ability of the Greek and Italian governments to do the right thing, Danny Alexander and his Conservative boss, George Osborne, want the boys in the City to be in no doubt that the British government will hold its nerve and, therefore, not alter a dot or comma of their plans.

No-one around the cabinet table is arguing to remove the spending strait-jacket the government has chosen to wear but some are arguing that it is just a little bit roomier than the Treasury are currently arguing. Here's why...

This week the Liberal Democrats have stated that the economy faces a demand problem - in other words, consumers and businesses are not spending enough. They have talked of the need for a stimulus.

The business secretary even evoked the father of the idea of spending your way out of recession - the economist John Maynard Keynes.

Every Lib Dem minister has stressed the importance of investment in the infrastructure and the need to maximise the bang the government gets for every buck it spends.

Nick Clegg said in his speech last week that if the government could do more, it should.

When Vince Cable and Chris Huhne talk of the need to be "imaginative" they are hinting that they believe the Treasury could indeed spend more bucks to boost demand and give the economy the stimulus it needs.

In contrast, Conservative ministers tend to talk about the importance of supply side measures - ways to make it easier to do business and create jobs by, for example, speeding up planning applications or minimising government regulations.

Different approach

Vince Cable mocked the idea that scrapping maternity laws or sending kids back up the chimneys could be the route to growth.

Treasury Chief Secretary Danny Alexander outlines how the government aims to balance austerity and growth

For the moment the coalition can stay united around the public rhetoric of "sticking to Plan A" and a private argument about the right mix of demand and supply side measures.

However, the worse the economic news gets, the greater the tension will become between the competing views of how to get the economy moving again.

Most prime ministers since the war have faced mid-term economic crises - Wilson in 67, Heath in 72, Callaghan in 76, Thatcher in 81, Major in 92 and, of course, Brown in 08.

Some changed their plans, others stuck to them.

Over the next year David Cameron may well face just such a crisis. The debate about what he should do if that happens is just beginning.

PS. Some people have asked me how on earth the government could spend more money and still stick to "Plan A".

Labour's Ed Balls insists that they cannot. Extra spending would have to be paid for by extra borrowing which is, he says, precisely what he has been attacked for proposing.

The ministers who are floating the idea have a response.

The government's Plan A is its so-called "fiscal mandate" which calls for structural current balance - that is, it excludes capital spending.

Providing the extra spending does get the economy moving, the increase would not, they argue, increase the government's other target - the GDP/debt ratio.

 
Nick Robinson Article written by Nick Robinson Nick Robinson Political editor

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    Comment number 81.

    If they really do have £5bn to spare then perhaps they might use it to fund a reduction in tax rates which will allow far more growth than any 'stimulus' spending or even, now here is a crazy idea, use it to actually reduce the deficit instead of talking about it whilst it increased in real terms every month of this parliament

  • rate this
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    Comment number 80.

    @ 79

    Why on earth, given the fiscal hole we're in, do you want the rich to contribute less, Jobs?

    Quite bizarre you are sometimes.

  • rate this
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    Comment number 79.

    lefty11 74

    So by your own stats the rich are paying more than their fair share. They earn 12 times as much on average but pay 24 times as much tax. That's a very strong case you've put forward for cutting taxes on the rich. I didn't think you had it in you.

  • rate this
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    Comment number 78.

    >> whereas, if you pay 1m to a chinless wonder in a bank, he only gets one tax free allowance, doesnt he? Not quite sure how few you'd need to spread it around to make sure you got more than the 650k in tax take you'd get from one. I know what you're trying to say and its no doubt sincerely held, but I think you might find youre mistaken...

  • rate this
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    Comment number 77.

    "although the larger amount provides a higher take to the inland revenue, if the wages were spread more evenly more tax would be paid by more workers to compensate somewhat"

    Not strictly true mate. Dont forget, each one of those who you would distribute this largesse to would have their own individual tax free allowances... and if they're low paid, that could be the first 10K or more of each.>>

 

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