U-turns are the least of Osborne’s woes

30th June, 2012

‘With U-turns on petrol, pasties, caravans, charities and churches, George Osborne’s Budget is now in tatters.’

Ed Balls, shadow chancellor, June 26

George Osborne isn’t going to raise fuel duty, then?

No. The man has more U-turns in him than The Dukes of Hazzard.

No shame in that. The Dukes of Hazzard is under-appreciated, I feel.

I’m not sure that claim will stand up in the face of repeat viewing.

Much like Mr Osborne’s Budget, then.

Indeed, indeed. But you have a point about U-turns being nothing to be ashamed of in their own right. If a policy is wrong it should be reversed. Politicians are far too proud of their inflexibility.

“The lady’s not for turning,” said Margaret Thatcher.

Yes, or Tony Blair claiming he didn’t have a reverse gear. It’s odd: you wouldn’t buy a second-hand car that didn’t turn or reverse but it appears to be a successful electoral strategy. Personally, I wish politicians would change direction more often.

So you approve of the U-turn on fuel duty, then?

Not really. What I’d like to see is politicians piloting their new policies wherever possible and rigorously evaluating them. And of course if the results prove the policy does not work, it’s time for an honourable and entirely admirable U-turn. But that’s not Mr Osborne’s approach. Instead, he seems to have floated half a dozen slightly flaky ideas and then withdrawn them all because people have complained about them. I mean, what does Mr Osborne now know about fuel duty that he didn’t know a few months ago when he proposed raising the level? Not much.

He knows that the euro is in trouble.

Which might arguably call for more economic stimulus. But this is not a stimulatory policy because Mr Osborne says it will be paid for by cutting departmental budgets.

He says he’s helping “hard-working families”.

I am endlessly surprised and faintly nauseated by the capacity of politicians to speak in clichés. If by “hard-working families” Mr Osborne means families in the upper half of the income distribution then he has a point – the poor are less likely to own cars.

Are you saying this is the wrong policy?

I’m saying it’s an odd way to go about it. There is a good case for much lower fuel duty if coupled with a proper system of congestion pricing, but even if that was politically feasible it would be a long-term project. If Mr Osborne really wanted to stimulate the economy he would be looking at publicly funded infrastructure, and perhaps sending everybody in the country a cheque.

That would surely damage his deficit-cutting credibility.

I am starting to fear that macroeconomics in general, and Mr Osborne in particular, have become obsessed with credibility. Not that it isn’t worthy of consideration. Of course it is. The idea, for instance, that monetary policy might become a lot more credible in the hands of an independent central bank is an influential and important one. But credibility has now been elevated, in Mr Osborne’s eyes, to a superpower. As long as you are willing to pay what it costs to achieve a reputation for toughness, Mr Osborne’s reasoning seems to go, great things will follow. I am not sure. If you credibly commit to the wrong policy, your credibility really will not help you much. It’s like that joke about the virtues of caffeine: “do stupid things faster and with more energy”.

He is determined to maintain that credibility, though.

It’s odd. There was an idea a while back that Mr Osborne should adopt a few small but symbolically unpopular policies – sell off Nelson’s Column, privatise Great Ormond Street hospital – but maintain overall levels of spending. That way the economy would get stimulus in the short term but the markets would realise Mr Osborne was capable of anything and would take tough long-term decisions if necessary.

But in fact he’s done the opposite.

Exactly: commodity prices and the euro crisis may have knocked the economy on its back, but Mr Osborne’s tax rises cannot have helped. He has refused to change direction there while flip-flopping on every piece of fiscal trivia he can find. As a consequence, he has managed to achieve something quite impressive: he has frittered away his credibility without ever deviating from his central policy of austerity – a policy that increasingly looks unwise.

Also published at ft.com.

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