“To back down now and abandon our plans would be the road to economic ruin. We will stick to the course. We will secure our country’s stability. We will not take Britain back to the brink of bankruptcy.”
— George Osborne, 2010
Announcing an economic austerity plan can be a tumultuous affair. It often invites disapproval from all sides and inevitably public wrath. But George Osborne, the Chancellor of the Exchequer of the U.K., exhibited considerable confidence and inner strength as he unveiled some of Britain’s most austere reforms since his appointment in May 2010.
Osborne, though, had not given economics or politics a thought when he graduated from Oxford University with a Masters in Arts. He wanted to be a journalist. Initially he worked with the National Health Service and then at Selfridges, a department store chain. In 1994, Osborne came close to his wish when he was accepted by the Conservative Research Department to head the political division. Over the next few years he changed hats from a special advisor and speech writer to eventually landing on the Prime Minister’s Questions team.
Osborne emerged from the shadows when he was elected as a Member of the Parliament for Tatton, Cheshire in 2001. He was the youngest Conservative MP in the House of Commons then. And at the age of 33, he was also one of the youngest people to be elected Shadow Chancellor of the Exchequer in 2005 for the cabinet of David Cameron, the newly elected Conservative Party leader.
As the specter of the financial crisis loomed large over the U.K., Osborne warned that the country was not sufficiently prepared. “My job as shadow chancellor is to tell the British people the truth about the British economy. The truth that it is the worst prepared economy in the world for recession,” Osborne announced in 2008. While some appreciated his foresight, many others attributed his candor to a lack of experience.
But it turned out Osborne was right. The U.K. was reeling under one of the highest public debts in the world, a situation aggravated by the downward spiral of the pound. In 2009, the country posted record government net borrowing figures standing at $251.7 billion, equivalent to 11.4% of the GDP. By April 2010, Britain’s annual budget deficit stood at $234 billion, the biggest in the Group of Seven and since World War II.
The next month Osborne took over as the youngest Treasury head in over a century, ready to “roll up the sleeves and get Britain working,” and promising “long-term structural reforms of the banking system, on education and on welfare so that we have an economy that works for everyone.” Indeed, in the same month, in May, Osborne worked with Cameron and outlined spending cuts amounting to $9.7 billion spread across various sectors including transport, pensions, education and business. Savings would largely be sourced from freezing public sector hiring, slashing perks, and trimming expenditures on IT and real estate projects.
As the U.K. economy displayed promise post the austerity measures, Standard & Poor’s revised its outlook for the country to stable from negative and confirmed its AAA rating.
In June, Osborne delivered his first budget. He increased VAT to 20% from 17.5%, an initiative which is expected to earn $20.4 billion in savings for the government. Welfare spending was slashed, with a 25% cut in public service spending. Housing benefits were topped with a maximum limit of $628 a week, while the capital gains tax was increased to 28% for high end taxpayers.
Describing his spending plans for Britain in detail recently in October, Osborne said that nearly 50,000 jobs would be cut over the next four years. The state pension age threshold has been stepped up from 65 to 66, a move expected to save over $7.8 billion a year.
The spending plans, proclaimed by Osborne to be based on reform, fairness and growth, have won approval from both businessmen and economists. The usually restrained Organization for Economic Co-operation and Development (OECD) said that the budget was a ‘courageous move’ and the International Monetary Fund (IMF) appreciated the speed with which Osborne acted.
Yet, over the last few years, Osborne has earned a few critics who have seen hints of favoritism in his rapid rise, citing his close friendship with David Cameron, an equally fast climber through the Conservative ranks. Cameron though, firmly brushes aside any such insinuations, “He stayed in my shadow cabinet not because he is a friend, not because we are godfathers to each other’s children, but because he is the right person to do the job.”
It appears now Osborne may have won vindication. The son of a baronet and heir to a fortune made from the family business of selling wallpapers, Osborne rejoiced as Britain posted third quarter results that beat expectations. GDP expanded 0.8% between July and September, which is almost double the growth forecast by economists. What’s more, the 2% growth rate over the past six months has been the fastest seen in two consecutive quarters in the past decade.
As the British economy rebalances itself, challenges remain for the 39-year-old Chancellor. Consumer confidence remains fragile. Households are yet to recover from debts and continue to restrain spending. If the economy is to spring back completely Osborne has to not just cut spending but also boost investments. The upcoming royal wedding may offer some welcome perks. But the young Osborne has proved himself once. It’s now time to do so once more.
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© Thomas White International, Ltd. 2019