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Iain Anderson: It’s all about competence

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Most of 2012 has been truly dreadful for the chancellor.

The mantle of economic competence which had taken the Tory Party almost four elections and around 15 years to regain has been dragged into the mire since the March Budget.

Poll ratings which had the Conservatives and Labour neck and neck at the start of 2012 widened throughout the year and continue to place Labour ahead.

So today’s Autumn Statement was all about re-establishing the Chancellor’s credibility.

All the tracker polling evidence shows voters know it’s tough. Their memories of Labour in power are still fresh and they can see managing a major Western economy right now is not easy. France is in the mire, Italy and Spain are having to undergo even tougher medicine and even German unemployment is ticking up.

On the macro numbers – most voters will be left scratching their heads. There was something Gordon Brown-like in the intricate presentation of the deficit reduction targets. But the chancellor had a clear set of answers for an unusually uncertain Ed Balls today.

We all knew the pension annual allowance changes were coming – we have done so since before the General Election. But the pre-briefing of a cut to £30,000 was designed to make the sector say “it could have been worse” as Osborne cut only to £40,000. They already are.

The uprating of the annual Isa limit and the huge extension of SME capital allowances are already winning cheers from savers and business owners.

And pension funds may even be happier today. At last there seems to be some movement reforming PFI and unlocking long term infrastructure investment opportunities.

But back to the macro numbers. I see chief secretary Danny Alexander was speaking after the chancellor sat down and he pointed to the UK’s AAA credit rating. “It’s not the be all and end all,” he told the BBC.

Mmmmmm – I’m not so sure. For the Coalition’s plans are built on getting growth back into the economy.

Competence is the challenge for all our politicians. So easily won – so easily lost it seems.

Iain Anderson is director at Cicero Group

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  1. In years to come this will be viewed as a tipping point budget. It was the last chance the Chancellor had to move us from a path that will lead inexorably to a stagnating economy and a slow downward spiral.

    We are in a liquidity trap and in such circumstances any monetary policy response will have very limited effect. Interest rates are zero-bound and more QE will be simply an accounting exercise with no material effect on the real economy. The only fiscal policy approach that will be effective in increasing demand in the economy is increasing Government expenditure.

    The Chancellors assumptions are based on an assumed multiplier of around 0.5 – as the IMF confirmed a couple of weeks ago in a liquidity trap multipliers increase – their mid-range estimate is 1.4.

    That Osborne chose to continue with his austerity agenda will, I believe, come to be seen as a very expensive mistake. There’s a saying, often wrongly attributed to Einstein, that the definition of insanity is doing the same thing over and over again and expecting different results – which looks increasingly appropriate

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