George Osborne’s Mais Lecture

After what could generally be regarded as a difficult four weeks, the Shadow Chancellor used last night’s Mais Lecture to break loose from the Tories’ “reassurance first” strategy, and confirm he would start cutting straight away.

And the alarm bells in the City started ringing immediately.

Almost as soon as George Osborne sat down, UBS’s highly respected senior economic adviser George Magnus voiced fears of many in the City who believe that Mr Osborne’s plans to cut spending immediately could lead to a sterling crisis and a ratings downgrade.

Mr Magnus’ comments came just days after the IMF said withdrawing support for the economy too soon could put the recovery at risk, echoing what 60 leading economists said at the weekend.

Much under-reported in George Osborne’s speech was another gem – his admission that his plans to cut tax credits and child trust funds for families on middle incomes are only ’some specific examples’ of the cuts he has up his sleeve – not the full picture.

We’ve always said that these plans were grossly unfair. Last night he reminded us of a Tory side we’d hoped would disappear when he said he wanted to get rid of the Child Trust Fund for people earning just £16k, who he described as being among the richer families in the country.

But now, we must also consider the impact that those cuts would have on consumer confidence – families who expect to see their incomes fall will be less likely to spend, slamming the brakes on the recovery even harder.

Mr Osborne has also said he’s going to increase the tax on business investment in a few months time by scrapping the Annual Investment Allowance: this when we know business confidence is fragile and when investment is critical to future growth.

Now that we know they WILL cut in 2010, he must come clean about the other cuts he is concealing. Our great fear is that the other cuts will include the discretionary fiscal stimulus schemes he already opposed – e.g. the Future Jobs Fund, and the business support schemes, such as Business Payment Support Service which has helped over 160,000 businesses to defer over £5bn of tax to get through the recession.

The Tories’ talk on the deficit is getting more and more aggressive but the detail of their plans if anything is getting cloudier and cloudier. We still don’t know by when they’ll halve the deficit; we still don’t know by how much further than us they will cut the structural deficit; and now most urgent of all, we don’t know what their planned cuts are for next year.

It’s time that the Tories end their strategy of concealment and be much more straightforward about the gamble they’re taking with our recovery.

Notes to editors:

 ”We will take targeted steps to reduce some budgets in-year – and we have set out some specific examples – in order to build credibility and make a start on reducing the deficit.” George Osborne, Mais Lecture, 24 February 2010

“A credible plan is not really credible unless you’re prepared to make a start on it this year.” George Osborne, Mais Lecture, 24 February 2010