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Saturday 25 July 2009

Hammond’s Chop Sauce

For a newspaper that is so often labelled as a Labour party house journal, the Guardian gives a lot of column inches to the Tories. And today is no exception: they have an allegedly exclusive interview with the shadow Chief Secretary to the Treasury, Philip Hammond, who would be deputy to the Rt Hon Gideon George Oliver Osborne, heir to the seventeenth Baronet, in a future Tory administration.

This is a significant role: Osborne may be making policy, but Hammond would be the enforcer and gatekeeper. He would be the equivalent of the corporate chief executive. And he is talking cuts. Well, so what? We’ve heard talk and counter talk of cuts for months. What is different this time?

Well, this time, Hammond admits that the effects will be painful, although he concedes only that this will only be for the short term (those who experienced what happened after 1979 may allow themselves a wry smile). He agrees that he’ll become a hate figure, which is an improvement in candour on his Tory predecessors. And he talks of “deep” cuts, and of a civil service ready to carry them out.

Honest enough, one might conclude, but the lesson from the post 1979 cuts is as clear as that from the USA in 1937: spending cuts when the economy is still in recession – depression in the case of pre-war USA – are most likely to tip that economy further into recession. Margaret Thatcher blamed a “world recession”, while not admitting that the UK and USA simultaneously following the Friedman quack doctory was the real culprit. And having to re-learn what is a very clear lesson is not clever or responsible economic stewardship.

Hammond also continues to perpetrate the Tory message that the public finances are in such a terrible state that Standard and Poor’s will take away the country’s AAA credit rating if action is not taken. However, S&P have only said that they will “review” that rating next year. Also, as France and Germany are also carrying high levels of debt – and the USA will be there very soon – why are politicians in those countries not clamouring for budget cuts?

Moreover, as Robert Peston discussed in his blog last week, Robert Stheeman, head of the Debt Management Office, is having no problem selling the vastly higher amount of gilts that the current economic climate demands, and neither does he think that a downgrade of the nation’s credit rating by a notch would make it “significantly harder” to raise the money he needs.

One would hope that the Tories were not merely scaremongering. After all, we’re talking tens of thousands of jobs going – that’s the translation of “pain”.

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