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Does the government need a 'Plan B'?

Nick Robinson | 10:20 UK time, Wednesday, 2 February 2011

You'll have to be damned lucky to deliver spending cuts deeper than any made since the World War II but, if you do try to alter your plans, interest rates will have to go up. Oh, and by the way, you might be wise to have a "Plan B" up your sleeve.

George Osborne holding the Budget box

That, in summary, is the chilling message to the chancellor this morning from one organisation he must sometimes wish he could cut - the Institute for Fiscal Studies.

Their lookahead to the Budget is the latest in a string of bad economic news since the turn of the year to add to that GDP statistic, the CBI's "no strategy for growth" speech and yesterday's blow - the plan to close Pfizer's pharmaceutical factory in Kent.

In themselves none of these alter the economic weather. What's more there are other better bits of news to put in the balance - such as yesterday's confirmation that manufacturing is booming.

However, they do add up to a political problem for the coalition as the public shows sign of losing their nerve - this week's ComRes poll for ITV News showed a growing number saying ministers had lost control of the economy*.

They also raise an intriguing prospect. Will this government, like so many since the war, face an internal crisis of confidence as some ministers echo calls for a Plan B? Will Cameron in 2011 join this long list - Wilson 67, Heath 72, Wilson 76, Thatcher 81, Major 92?

* The poll suggested that almost half the country (48%) believes the government has lost control of the economy. This compares to 29% who believe that the government is in control of the economy. 52% of the public believe that the UK is on course for another wave of recession, up from 38% when asked the same question in October. In contrast, 17% of the country doesn't believe there will be a double dip - compared to 24% in October. Asked whether they think things are generally heading in the right direction, 48% said no, up from 32% when asked in October. This compares to 28% saying they think things are heading in the right direction, down from 41% in October.

Comments

  • Comment number 1.

    This must tend to reinforce one of the Coalition's lucky (for them) side effects. When the going gets rough there's more incentive for them to stick together politically at least.

    Let's see if anyone breaks ranks.

  • Comment number 2.

    It would be foolish for the goverrnment to admit they have a plan B, as this would cause further uncertainty. However, to be so blinkered and inflexible, as the ever more moronic Osborne and Cameron appear to be, is plain stupid.

    They seem determined to pull the rug from beneath the economy without making the necessary adjustments along the way. No wonder the country is beginning to distrust and hate them.

  • Comment number 3.

    "They also raise an intriguing prospect. Will this government, like so many since the war, face an internal crisis of confidence as some ministers echo calls for a Plan B? Will Cameron in 2011 join this long list - Wilson 67, Heath 72, Wilson 76, Thatcher 81, Major 92?"

    Probably. I reckon we're in for a re-run of 70-79, for what its worth with Cast Iron playing the part of Ted Heath, Ed Balls as Dennis Healey, Buzz Lightweight as Harold Wilson and... there aint anyone who could fill the Thatch role. Not yet anyway.

    Either way, it'll end up with the same result; union orchestrated discontent, general election within 18 months, Labour back in and the IMF booking their business class seats to Heathrow within six months of that.

    Followed by about five years of taking the same course that we are now.

    Those who do not learn the lessons of history are doomed to make the same mistakes... or something like that.

  • Comment number 4.

    All this user's posts have been removed.Why?

  • Comment number 5.

    Lost control of the economy? - when did they have it. This is a right wing free market government - they dont need to say they control it. The 'Market' like God moves in mysterious ways but ultimately things will be good. Wait for the CPI/RPI and unemployment figures plus from April the public sector cuts and price increases then the current period will seem like the phoney 'War'.

  • Comment number 6.

    Bertie Wooster told us that economic growth had collapsed because of the wrong kind of snow. Many of us thought it was because consumer confidence was at rock bottom because his cuts meant millions of us had no way of knowing if we would have a job.

    Subsequently polls show consumer confidence slumped in a record decline and now half of the population believe they have lost control of the economy.

    They came into power as a global recession was ending and world wide upturn had commenced. In the disunited kingdom they have trashed that growth with their ideologically motivated cuts.

    Well done.

  • Comment number 7.

    Unfortunately, I agree with the public on this, the economy is beginning to go in the wrong direction. Not because as Labour would claim spending cuts go too far, but because they do not go far enough. The state is still far too big, to be supported by the private sector. It is far to big even if growth of some kind returns. Unless more deep and serious cuts are made the much needed tax cuts cannot be afforded to provide the stimulous for growth. Tax cuts are the only method left for Britain to see growth in the economy.

    Unless Osborne in the budget goes much further in his cuts and reduction of taxation Britain will continue to see the economy decline. Regulation on business is also still a big problem. However with the toxic Vince Cable still in charge of business I do not expect any progress in the near future. The man is a complete menace and knows little if nothing about economics.

    Rather than the Lib/Dems being, what people claim are the conscience of the Coalition, they are a complete nuisance by holding back the real policies to get the UK economy moving again. Cameron should see sense and listen to his own party, who had the economic argument right before the Election.

  • Comment number 8.

    Must be signing on day, the usual lefty malcontents are in early....

  • Comment number 9.

    Fubar 3

    I agree, this is the 70s all over again. If the policies remain the same for the economy as they are now, the end result even after 5 years will be pretty much what Coalition started with.

  • Comment number 10.

    Nick,
    To what extent do you think the poll result is an expected result of constant scrutiny by broadcasters? If the test is "any uncertainty" and we're talking about the future, you were bound to highlight the risk of failure, rather than the risks of success.

  • Comment number 11.

    Just a thought but was the bank bail out motivated by a desire to maintain the political status quo and the current system of Parliamentary governance?

    It would seem that the bank bail out was at least politically self-serving given the requirement for future borrowing. Indeed we the people are paying an enormous price in order for Britain to preserve its credit rating, and thereby make future borrowing affordable for the government.

    Could things have been managed differently? What, as many have asked, would have happened if the government had decided to repay the banks via paying off some household mortgages?

    The arguement against this is it would have led to inflation, yet inflation is rising in any event. The other issue is of course that the banks would have lost them as assets, but they may lose many if interest rates climb and house prices dive.

    Just a thought but wouldn't the removal of mortgage pressure have calmed the housing market and rental market? More sellers may have entered the market but at more realistic prices and created a buyers market, that could be correctly managed by lenders?

    It does seem that whilst the government of the day was not prepared to 'sacrifice' the banks, they were prepared to put us in peril!

    However if mortgage holders or a percentage of them had been freed of that debt and had gone on a spending spree, wouldn't that ignite the economy more effectively than an stimulus package using more borrowed money. Equally it would have removed the pressure for wage rises. The BOE could have managed inflation via interest rises, something they can't truly do now if they want to keep people in houses and avoid unrest.

    I accept the above may be wonderfully naive but there was a moment in time when the Government had true leverage over the banks, could something else have been done?

  • Comment number 12.

    6. At 11:22am on 02 Feb 2011, jon112dk wrote:
    =========================================================================
    Even the Guardian knows that the global economy is not in the full flush of spring;

    https://www.guardian.co.uk/business/2011/feb/01/global-economic-recovery-tensions-strains-imf

    Strange how the IMF, WB and ECB all are calling for developed countries to get their finances under control while getting their debts back to a manageable level. That means reducing the deficit unless your name is Ed then it means making cuts but just not those ones and raising taxes but not those ones, Oh and yes spend to aid our way out of the trouble we are in.

  • Comment number 13.

    I'm stil torn as to whether I think these cuts are going to be worthwhile or not. While they're a step in the right direction, in my own experience I haven't noticed anything drastic which from the reaction I was sort of expecting. The main issue for me still though, is the VAT which is simply to high and that will cause issues further down the line.

  • Comment number 14.

    Irrespective of my political views I cannot help but feel this is a one time government.

    The omens whichever way one looks with high youth unemployment, inflation, more demands by an older population both working and not, do not bode well for cohesion in society.

    Unless some stability is injected such as fixing the long term mortgage rates at the current low levels, as in Europe and US the UK will face large and real economic decline. With so much wealth and debt in housing we face a dangerous time economically.

  • Comment number 15.

    Plan B?

    This is likely to be dictated by the IMF or whoever else we go to with our begging bowl.

    I suppose you might call a 'meatier' Plan A as a Plan B? 'Meatier' as in deeper structural reductions in spending across the economy - so going into the sacred cow territory of the NHS, as well.

    Plan A is bound to produce pain - in other contexts it is called 'cold turkey'. We are coming down off of a credit-fueled high and now need to 'cleanse' our system/economy.

    If we get to Plan B there will still be pain but the ones administering the cure, will have German, French or American accents!

    I suspect that the reasons we find the economy in such a sorry state include an ideological obsession with spending (call it investment, no one will notice) by the last government and pandering to vocal minority interest groups, also by the last government. Of course we can't ignore the external contributory factors but the poor UK position has been exacerbated by the reckless behavior of the previous regime.

    Incidentally, what is the sample size for this poll?

  • Comment number 16.

    They should have a list of plan B options to tweak plan A when things do not go according to plan. I don't believe they do though. Dave and George are the true free market believers. They really do think it will all come OK in the end. The education they both had will have instilled in them that they should trust their instincts and given them the self believe that they are right.
    I feel like I am 17 again and its 1979 watching inflation increase (it went up from 10% in 79 to a peak of the lower 20% before coming down to 3.2% in 1981 and then rising to 10% again in 1990). It took Thatch and Howe a few years and record unemployment before they changed policy and things changed.
    This government will probably be worse because its a coalition and a lot more people need to be consulted.
    For us people running a business it's a case of keep your head down, wait for the storm to blow over and hope there is still some sort of economy left when the experiment is over. At least this time manufacturing is doing OK -there is just not enough of it to make a big difference.

  • Comment number 17.

    I am mystified by this headline and summary from NR, it appears to have erred towards sensationalist reportage rather.

    It doesn't even appear to agree with the BBC report on the subject which it links to. It certainly bears little resemblance to the what is actually contained within the conclusions and narrative summary of the actual IFS green budget.

    It identifies some downside risks which are well known but hardly chilling - it states quite clearly that the resilience of the plan to macroeconomic shock is not good as we have no monetary policy options left to offset it. It does recommend having ideas of how variances to the plan should forecasts not be met.

    It contains some more interesting points on the political side which I would have thought merited some inclusion on a politics blog.

    1: It states that the deficit reduction plan as contained in Labours last budget would broadly have had the same effect to return the national finances to stability - surely the one line 2 Eds will leap on. The implication clearly that the specific deficit reduction plan is a political choice rather than a financial imperative - the wording also implies that the statements over fiancial meltdown in the bond markets was clearly political hyperbole from the chancellor.

    2: It is questioning over some of the business tax policy changes and downright critical of the patent tax breaks as counter productive and amounting to a tax break for a very small number of companies.

    3: One for the blue lensed - the PBR is forecast as being under forecast (i.e. deficit could be lower than forecast) and any bonus from this they advise is banked and not given away in tax cuts.

    4: The OBR has been a good thing for transparency overall and better informed the treasury.

    5: Implies that tax system is too complex which is more of a problem than the rates for industry - given they will be lower than all major EU competitors.

    Report seems to be quite balanced and highlights the risks and downsides associated with the plans - all which are reported but really does stop well short of predicting disaster if the current course is not immediately changed.

  • Comment number 18.

    #7 #3.

    See nobody as the Heir to Thachter unfortunatly other than maybe David Davies.

    DC was in a v strong position in may , could have force the Lib-dems
    into a better agreement.

    It is quite clear that the Lib-dems are holding back the reforms.

    The only real cuts that I can see are the cutting up of the MRA4 Nimrods, massive mistake.


    As fior Fjizer , kent has already lost Shell Research around 92 and
    GEC/Bae down from 8800 in 1987 to around 1200 today. Sheerness Steel

    And all the garden of England crops are being harvested by none UK nationals as they cannot work and live of the same slave rates that the non UK nationals do, another result of Blair/Brown's policy.

    Area around Margate/Ramsgate/Docer are very deprived with high level of Non Uk national doing the work. what a mess left by Labour again

  • Comment number 19.

    Susan Croft #7
    My point excatly. We need a meatier Plan A.

    I think the blessed Margaret would have used the word frit to describe current commentaries.

    We have had the merest taste of the medicine and already some are 'gagging' on it.

    Do we really believe that the so far very modest spending reductions, have actually yet began to have any impact?

  • Comment number 20.

    #11 like Iceland that could have been let to go to the wall BUT

    1) Jobs were in Labour heart lands of the Bust Banks
    2) Recession/depression would have been on Browns watch.

    So to try and save one man job he put the whle economy in trouble

    and the Banjers walked away with tonnes of pension pots etc.


    you just cannot write this level of incompetance

  • Comment number 21.

    Jon112dk 6

    Sorry complete and utter nonsense, continuing to spend is not growth.

    If you want to criticise anyone for lack of growth in Britain blame Balls and Brown. During the boom time they could have used the taxation collected, mainly from the financial sector, to spread growth throughout the UK and created jobs in the private sector. Instead they spent beyond taxation causing deficits year on year, thus the problem the UK have now. High taxation, lack of growth and a massive public sector which costs well beyond the ability of the private sector to pay.

    I have never heard such a silly argument in all my life, ideologically motivated cuts, for goodness sake. No Government would make themselves unpopular and possibly lose power for these reasons. What would they gain?. Use you head.





  • Comment number 22.

    Perhaps Nat Wei can draft them a Plan B? Another poor judgement call from Cameron, here is your peerage and I got... Plan B? Lib Dems need that AV vote, thats their Plan B... Tories will have a Plan B, what is Camerons? Trying to think where the good news will come from for him personally in the next 2 years, and whether he will survice that long? He will want to say UK avoided recession and on target to deliver 2.1% growth, if that slips.... It will be interesting to see what noises come out after the budget and what is agreed with the banks. If nothing moves in next 6 months his way, then people will position very quickly, Number 10 (at least) will be up for grabs.

  • Comment number 23.

    Did you find it interesting that Labour was so vehement in its opposition to the plan to reduce the number of MPs by 50?

    Leave aside for a moment that these would loikely be from mostly Labour seats which are currently dis-proportionately over-represented.

    Just think. 50 MPs at say £300K each - when you take account of salary, pension, assistants and office costs (oh and perks of course).

    That would come out at £15 million a year.

    Why didn't Labour jump at the opportunity to save this amount for the nation? How many hospital beds or front-line staff does taht represent?

    COME NOW!

    Noses out of troughs - you have been asked a question.

  • Comment number 24.

    18#

    The Nimrod deal should never have been signed in the first place, IR. Even now, there are over a hundred serious design faults, including the one which brought down the MR2 over Afghanistan - despite that loss, the design fault is still there. God knows how many times over budget for less than half the airframes - BAe were taking the mickey (as they always did when a project had the word "Nimrod" in it) and the MOD werent fit to manage the project. At some point you have to stop chucking good money after bad. And Nimrod, by and large, has been bad money, from start to finish.

    Its not so much the loss of the Nimrod that is the bad decision, its the capability holiday being taken with regard to Long Range Maritime Patrol & SAR and looking after Trident.

    All well and good expecting the French and the Norwegians to cover the gap, but so far as SAR and looking after Trident is concerned, they cant really do that to the level we need. Brazil has just bought a load of ex-USN P3's, which would cover our requirements; we could have had a similar deal in the mid-late 1990's, but Portillo bought the BAe lobbying line, as most defence ministers always have, regardless of political colour.

    At some point we're going to have to stump up for a replacement fleet, but... Nimrod wasnt it..

  • Comment number 25.

    October or May Election anyone ?

  • Comment number 26.

    "21. At 12:05pm on 02 Feb 2011, Susan-Croft wrote:

    "Jon112dk 6

    .....

    I have never heard such a silly argument in all my life,""


    Oh, come on Susan. You and I are regular readers of Saga's posts.

  • Comment number 27.

    Nick,
    Labour lost the election, get over it. Please pass this on to the hierarchy in the BBC.
    Why not write a blog on the Chilcott enquiry as this would be of more interest to your readers. Make sure it's not too labour biased though!

  • Comment number 28.

    #24 athough much of what you say it true, it was still capable unlike the Chinook Mk3 which where not even allowed to fly as there issues were that serious. Both were placed in the mid 90's under tory HMG, but guess most of the trouble is within the MOD.

    Much is based around unrealist expectation of what can be delivered in terms of time and cost. They need to be rather more honest with each other about this then there would be less problems

    The nimord/comet is the only stealth MRA in the world as it does not have props which submarines can detect.

    But they were there could have done a job rather than now we have little or no cover, this all started by keeping the shacks in servies to long, more overhang from the lost labour crisis of the 70's

  • Comment number 29.

    23. At 12:10pm on 02 Feb 2011, obritomf wrote:
    Did you find it interesting that Labour was so vehement in its opposition to the plan to reduce the number of MPs by 50?

    That would come out at £15 million a year.

    Why didn't Labour jump at the opportunity to save this amount for the nation? How many hospital beds or front-line staff does taht represent?

    ==========================

    Because it is small beer and arguably less important than the effect on how our parliament works.

    If you take a very crude calculation based on cost of NHS and number of beds the answer comes to approx 21 beds. It is not a good calculation admittedly - any ideas which of the hundreds of hospitals should get an extra one?
    Or for staff depending on what you pay them - but including employment costs etc likely no more than 300 probably considerably fewer considering there will be expense incurred by whatever it is these people go on to actually do.

    The value represented by a representative democracy is difficult to square with other priorities.

    Using similar cross arguments it would be perhaps easy over blow the argument and simply say why bother with parliament at all and just have a single directly elected dictator - imagine how much could be saved in costs of MPs and Peers and they woudl still be demcratically elected so no problem there. You could save what

    When the government and associated posts commands nearly 130 MPs covering all the different departments and their direct dependents (and including shadow structures which are party machines (PPS etc).
    Then if you reduce the number of MPs and assume a FPTP where the the government has a majority - then you end up with position where a majority of the MPs are have vested interest in the machine (even more than now) thus reducing the backbench/maverick representation to negligible levels. It is often these awkward squad MPs that have disproportionate impact in exposing bad legislation or addressing politically difficult problems.

    So the arguments for and against reducing the number of MPS is very much more complex and valid than reduction to simple cost analysis.

  • Comment number 30.

    "25. At 12:22pm on 02 Feb 2011, IR35_SURVIVOR wrote:
    October or May Election anyone ?"

    Not a chance. The Lib-Dems and Conservatives are stuck with each other, otherwise each will commit political suicide.

    The Prime-Minister isn't going to call an election however bad it gets...., he could 'god forbid' die in office, but an un-elected PM continueing to the bitter-end is hardly unprecedented is it?

    So all those wishing this coalition to end early are whistling in the wind.

  • Comment number 31.

    Re-run of the 70s? (3,9), let’s hope not. A great decade in many ways - the food, the fashions - but it ended badly. It ended with Mrs Thatcher and was followed by the 80s, during which the seeds of the present crisis were sown. One can only hope - this 80s genesis being quite clear now - that lessons have been learnt.

  • Comment number 32.

    31#

    Well, I dont think we can say, regardless of which side of the political garden fence we sit on Saga, that those lessons really have been learned.

    The only thing that has been learned is the very dark art of manipulating largely predictable events for your own political gain. And that has been something that has been learned by all sides of the house, for once I'm not embarking on an anti socialism polemic... well not just yet, anyway...

  • Comment number 33.

    Mmm (32), true enough. Spin is well and truly in the driving seat these days.

  • Comment number 34.

    Given the size of the deficit and the scope of the cuts I'd be surprised if George Osborne did not have Plans B,C,D etc lined up to use as soon as Plan A fails to do its intended job.After all, there has to be a point when you cannot cut any more and by the time we reach that point we need to have the plan for growth and the plan for reducing the numbers of unemployed well and truly up and running.

    Failing to have backup plans would be an act of monumental arrogance and would be akin to the captain of the Titanic saying we don't need lifeboats as this ship is unsinkable and we all know what happened there.

  • Comment number 35.

    All this user's posts have been removed.Why?

 

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