Citywire for Financial Professionals
Stay connected:

View the article online at

'Team Osborne' economists urge chancellor to rethink austerity

Almost half of the leading economists who two years ago signed a high profile letter endorsing George Osborne’s deficit reduction plan have urged the chancellor to rethink the pace of cuts.

'Team Osborne' economists urge chancellor to rethink austerity

Almost half of the leading economists who two years ago signed a high profile letter endorsing George Osborne’s deficit reduction plan have urged the chancellor to rethink the pace of cuts.

Nine of the 20 economists – including Capital Economics founder Roger Bootle – told the New Statesman they believed alternative measures should be considered. The others failed to reply.

The letter, described by Osborne when issued in 2010 as ‘a decisive moment in the economic debate’, offered one of the most authoritative endorsements of reducing the structural deficit in a single parliamentary term.

‘If I were chancellor at this point, I would alter the plan, I would stop the cuts to public investment and I might even seek to increase it,’ Bootle told the New Statesman.

‘Supply side reform might be welcome but what we are talking about here is shortage of demand. The key thing is to try to get the private sector to spend its money and that might require a bit of government spending to prime the pump.’

The original letter endorsed the idea that a significant immediate programme of debt reduction would be critical to maintaining credibility with gilt investors and ratings agencies.

Many of the signatories now believe that the willingness of investors to bid up pricing to record low yields effectively gives the government some leeway in reconsidering its original timetable, however.

‘If the Government has made a mistake, it is in cutting capital expenditures,’ said professor Michael Wickens of the University of York.

‘This could be debt financed. If the government clearly explained this strategy, I believe that the market would not charge higher rates.’   

36 comments so far. Why not have your say?

Jeremy Bosk

Aug 16, 2012 at 10:32

Osborne the Obtuse will see sense as the next election approaches. Or he will see the door marked "EXIT".

report this

Alan Tonks

Aug 16, 2012 at 12:54

The only deficit I can really see, is George Osborne and the so-called economists in their reasoning power, putting it simply they have none at all.

report this

William Bishop

Aug 16, 2012 at 13:32

Perhaps there was rather more latitude than there seemed in terms of not cutting as sharply or quickly, although a loss of confidence by international lenders would have been far more damaging. Professor Wickens may be right - at current rates the government could reasonably borrow more to invest; although the economic efficiency of goverment investment can be questioned, it may be the only game in town, and is certainly preferable to putting more into current government spending.

report this


Aug 16, 2012 at 13:41

If austerity alone was the solution, someone would have figured this out by now. Ditto for QE. Some austerity is good and brings benefits, too much will kill the patient (look at Greece).

We need some austerity to reduce the costs, some QE to manage the interest rates and stabilise the banks, and some investment to keep people in useful employment (this is more productive than having them on benefits).

Osborne may be around longer than one would expect, seeing as he is Cameron's closest chum.

report this

wayne roberts

Aug 16, 2012 at 13:54

I wonder how well we would have done in the Olympics if Team GB had been forced to use a George Osborne austerity package? It's staring him in the face that sometimes you have to spend money to get results..

report this

Jeremy Bosk

Aug 16, 2012 at 15:32

Governments need to return to the pre-Thatcher era of pragmatism as opposed to modern dogmatism. Return to what actually works instead of what ought to work but doesn't.

report this

Geoff Downs

Aug 16, 2012 at 15:44

This article and the comments show one basic problem. The Politicians and Bankers don't have the solution. None of the comments above suggest a real answer. The debt problem has been allowed to spiral out of control and there appears a lot of people, including some so called experts, don't appear to think it matters.

report this

Clive B

Aug 16, 2012 at 16:04

An article in The Times yesterday (I forget who the author was) made the point that we overpay overselves massively compared to the likes of the Chinese and have increased the size of the benefits systems massively as well.

Until we pay ourselves appropriately relative to our competitors and have a benefit system we can afford, rather than simply one we desire that hands money to just about everybody and every situation, we're not going to get out of this mess.

report this

Gill Pelosi

Aug 16, 2012 at 16:06

Geoff, I agree. It's very easy to say things aren't working currently but who has a real solution? Everyone seems to talk about us being in a recession and we need to spend money to 'drag' ourselves out of it but this is a debt and credit crises and I struggle to see how we can solve it by borrowing yet more money. We have been living beyond our means for many years by using never ending credit. The only reason we had economic growth in the last 30/40 years is by borrowing money!

I see Bootle's suggestion is to get us all to spend more money when that's what got us into this mess in the first place! We all seem to be told to spend more money in one breath then told we need to save more money (for retirement) and pay off our debts in the next breath.

It seems to me this is a crisis of capitalism. In my view (others may disagree) communism, socialism etc have been shown not to work but neither does capitalism as it relies on relentless growth. Where do we go from here?

report this

Geoff Downs

Aug 16, 2012 at 16:18

Gill, You are spot on. If a new way forward is not found you have to fear for our very way of life.

report this

wayne roberts

Aug 16, 2012 at 16:26

The world population is growing so there is room for financial growth too as we all need homes/food etc.. if you want to live within your means you are welcome to go to Poland.. they came through this well as they never really spent much so didn't have much debt and their population are just used to austerity.. or you could try spending money to make more money and that way you will be able to repay the money that you borrowed with interest and everybody is happy. Of course you need bright sparks to invest in and the uk education system isn't exactly creating many of them.. probably because of budget cuts..

report this

Gill Pelosi

Aug 16, 2012 at 16:27

Yes Geoff and I for one am scared. I just can't see where we go from here.

report this

Jeremy Bosk

Aug 16, 2012 at 16:28

Clive B

The UK is not China. The Chinese still have huge numbers of uneducated peasants who are really not in the market economy but live as our mediaeval ancestors did. This drags down China's overall productivity and average wages. China also still mainly produces unsophisticated manufactures with low value added and correspondingly low profit margins leading to low wages. We produce either more sophisticated goods requiring more skilled and therefore higher paid labour or we produce the lower technology goods using fewer workers and more machines. The machines do not need wages so the profits go to fewer human workers. Which means we can afford to pay ourselves more.

report this

Gill Pelosi

Aug 16, 2012 at 16:37

Wayne, I'm not sure how budget cuts have affected our education system as they have hardly kicked in yet whereas education has been going down the pan for many years.

Education now seems to consist of teaching people how to pass easier and easier exams rather than teaching properly and making students think for themselves. We also seem to hold back the brightest students to make things 'fair' and have discouraged competitiveness. Our fall down the International league tables of education is shocking, so is the fact that employers are finding school leavers unemployable. The people we are letting down most are the students themselves by being dishonest

Without being competitive and encouraging the brightest how will we ever compete globally?

report this

Gill Pelosi

Aug 16, 2012 at 16:42

Clive have you noticed how China (and other emerging economies) are moving up the International league tables of education so this situation will not last forever

report this


Aug 16, 2012 at 16:46

Shame Labour lost the election, wasn't this their policy?

report this

wayne roberts

Aug 16, 2012 at 16:54

Gill I totally agree but I do think the UK can compete globally, despite crap schools / teachers some determined students do manage to scrape through and keep Britian as a major player on the world stage.. we just need a government that doesn't hold them back to save money/clear debt, that is just stupid economics..

report this

Jeremy Bosk

Aug 16, 2012 at 17:00

Gill Pelosi

I think you meant your last post at 16:42 for me.

I certainly have noticed the improved educational standards of the Chinese. I visited Manchester University a few weeks ago and saw large numbers of bright, diligent and generally impressive Chinese students. We make money from educating them - they pay higher fees than the natives - and they go back to China as potential customers. If we are really lucky, they stay here and remind us of the virtues of hard work and using the brains we were born with.

No, I am not being sarcastic, I personally know Chinese immigrants who are a great asset to this country. Naturally the Tories in the malignant form of Theresa May are doing their best to choke off this valuable resource.

report this

wayne roberts

Aug 16, 2012 at 17:04

PedroKTFC Yes it is a shame Labour lost the last election, Gordon Brown will have the last laugh, prosperity depends a lot on optimism and confidence.. introducing 'austerity' as a way forward might keep the markets happy in the short term but ultimately it means people keep their wallets shut and that can only be bad news in a capitalist society.. this article just proves my point.

report this

Andrew Milne

Aug 16, 2012 at 17:05

Portugal's trade deficit shrank by 43 percent in June from the same month one year ago to 577 million euros ($708 million) due to an increase in exports,

Exports grew by 9.2 percent to 3.9 billion euros while imports dipped 2.4 percent to 4.5 billion euros.

In the second quarter, exports increased by 6.8 percent and imports dropped by 8.3 percent over the same period in 2011.

The economy is predicted to shrink by 3% for the year.

It is incomprehensible to me where Osborne's mind is, and why.

report this

Geoff Downs

Aug 16, 2012 at 17:16

Andrew, You seem to know what Mr Osborne should do, so can you tell us.

report this

Gill Pelosi

Aug 16, 2012 at 17:23

Jeremy, yes my last comment was meant for you. Apologies to both you and Clive - I think I need to go back to school!

I don't disagree that some Chinese immigrants (and other nationalities) are an asset to this country but it is sad if we cannot educate & motivate our own children in our schools.

I find it interesting that you mention the Chinese students going back home and being potential customers but not a potential threat in being able to produce the higher value goods with higher skills that you previously say we produce now?

report this

peter hart

Aug 16, 2012 at 17:34

Everyone I know is doing well by which I mean making a reasonable living. That said I am not sure Osbourne knows if its Christmas or Easter. 2 out of 10. Sorry George.

report this

an elder one

Aug 16, 2012 at 18:19

Surely it is justifiable to borrow to finance any specific infrastructure project that can be shown to yield appropriate profit to cover the cost; admittedly the analysis may be difficult.

report this

Andrew Milne

Aug 16, 2012 at 18:22

Geoff,thanks! Yes, I could tell you. But I charge for advice to Governments.

And I only advise those who will listen. If one does not charge, nobody listens.

I'll give you one example from today's article on this site. It lists the 20 most wanted tax evaders on HMRC's list. In terms of evasion, these guys are fly-specks. Big earners pay no tax, the cleaning lady does. So go after the revenue.

Shut down Cayman, Jersey, Guernsey et al. Clinton had the knowhow but not the clout. Stimulate Business, don't suffocate. Liquidity, liquidity, liquidity.. Stop silly schemes like £38billion railway trains. Cut the heart out of corruption and stop playing favourites. Learn that a debate is a combative discussion aimed at drawing on collective wisdom,not a fight in the playground.To scratch the surface. Abolish greed, above all. We are drowning in vested interests.

Britain has the brains, they are not in Parliament. That's all you get for nothing! .

I suspect you have a good idea yourself.It takes guts and eyes that are not fixed on Elections 2015. When the above is achieved, please let me know. Good luck.

report this

Jeremy Bosk

Aug 16, 2012 at 19:00


If we stop educating the the Chinese they will simply go elsewhere and gain a favourable attitude to whichever country or countries teaches them. So we have to educate them, snaffle their best brains and educate ourselves all at the same time. It is basically what America, Canada and Australia do already.

It will of course come to an end when Chinese education surpasses our own. In science and engineering it is close. The prime reason for them to come to this country is probably to learn western ways both in a social and a business sense.

We just had our best relative scores in the Olympics in 108 years. Which shows what we can do when government policy and popular desires mesh.

Andrew Milne

If you are advising the Tories to abolish greed, it is no wonder they do not listen. Their ideology exalts greed as the prime virtue.

report this

Anthony O' Grady

Aug 16, 2012 at 22:42

Agree with above comments which suggest that nobody has a solution.

The truth is that the Govt is obsessed with public sector debt. This isn't to say that public sector debt isn't significant,it is, but the real problem in dear old blighty is the shocking level of private household debt. The truth is that people are hamstrung by debt, and deleveraging now comes first. This means they aren't spending, they don't want to borrow (unless it is out of desperation) and of course the banks are disinclined to lend.

The UK's economic 'success' has been built on borrowing and consumption. The only sustainable way to grow is to produce and to save. We now face a long hard road, and if the likes of Boris Johnson think that cutting tax and regulation will solve our problems then he is just underlining his own stupidity. Looks like Japan all over again in the west.

Not to mention the worlds biggest ponzi scheme, which is still to fully unravel.....the UK housing market.

report this

Andrew Milne

Aug 16, 2012 at 23:32

Thanks Jeremy, yes, greed is exalted. Take any creed, any "ism" whether capitalism or communism,one can mount a plausible theory, BUT humans are the downfall of theory. Interestingly, Islamic Financial Law outlaws greed. There you will find no obscenely overpaid executives in Banks, but skilled financiers complying and interpreting their faith.And monitoring products in action, a regulator's dream. Sharing risk and profit between institution/customer, and transparency. No Libor, no interest component! At one stage Malaysian Islamic banks held 60% of deposits, mostly from non-muslims who liked the profits and service. I am not a Muslim, but admire the financial creed.The capital markets are successful also. There are 100 million Muslims in China. In the 10 countries in which I have practised law, my experience has been that very poor people fight for education, laugh and sing, rich people get all screwed up.China finance is well-run and disciplined, India, well, it's complicated. All this would be a hard sell in Britain! Where Mr Micawber had issued his advice long ago! Cheers

report this

Paul Barrett

Aug 17, 2012 at 05:24

Very strange comments about Chinese not producing stuff as good as we can

Almost racist.

Seem to remember the same comments about the Japanese!

Which country apart from USA and Russia has put people into space and are going to build their own space stn...............oh yes it is those technically and educationally inferior Chinese.............NOT.

I think a little less complacency and more fear of the Chinese economy is called for.

We have to catch up with the Chinese, nit the other way around.

The Chinese as inscrutable as ever watch, listen and learn.

Plagerism does not concern them.

they will locate information anyway they can to get aheade and yes that includes industrial espionage

The Chinese are nobody's fools

They are to be feared as a competitor of equal or superior technical knowledge.

Most of the ealy invention was by the Chinese.

We were still living in mud huts whilst the Chinese civilisation was flourishing.

A little more contriteness is called for by Western nations.

Believe me the Chinese WILL be the biggest economic power in the world.

The US remember owes 13 trillion dollars, about 3 trillion of which is owed to the Chinese.

We need to upskill the western workforce as rapidly as the Chinese are churning out graduates.

If we don't we will become a nation of consumers rather than producers and that will suit China very well, thankyou.

Be afraid, be very afraid of the Chinese and their increasing economic power.

report this

Andrew Milne

Aug 17, 2012 at 07:13

Paul Barrett, how refreshing. You too must have been there! Since 1992 I have made various visits at Chinese invitations, to speak 10 cities. on doing legal business with China, and later as a regulator i/c the Min/Finance of an Asian country, meeting counterparts..Co-authored a book on doing business there with a Chinese law firm. Every visit was a huge learning experience. The warmth, increasing use of English, development, in all areas is stunning, the figures stunning. The yearning for education is in every home. It reminded me of years spent with HK Governmen pre and post 1997. For me, the treacherous sell-out of millions of Chinese British citizens by Thatcher was beyond belief. The 99 year lease myth/bogey was untrue. HK island, Kowloon were British soil.

The Baroness won Falklands, lost/sold key to China. Visit Changcun, in the North, close to PRK, wall to wall Audi, Mercedes -manufactured there. Deep anti-Japan memories. Speak well of the new China to a poor person, and watch the joy. 5000 years of culture. But for present purposes, Financial Discipline.Pride. Modesty. Skills. Welfare rising in a steep curve. Graduates from around the globe-and within. They politely listen to rants about their currency. And do what's best for China. The Chinese do not engage in war, because they have work to do. But they do not neglect defence. So don't rile them.The US elections provoke tears of mirth.Our Government is quaint. As to Human Rights, they are respected, especially to learn, prosper and enjoy. It's about National Pride. Obama wants to saturate and ring-fence to South China Sea? Well, we'll see.

Is all well at home now for Americans? asks China!. .On a different note, when dissident Chen sought refuge in the US Embassy,later "fled", he got Chinese assistance.Play by the rules and be glad he'ssomeone else's problem! It's really very funny!The Chinese love to laugh, like we used to. Respect for Britain is at an all time low everywhere.. What can we do? For now, laugh it off.Until say 2014.

report this

Jeremy Bosk

Aug 17, 2012 at 07:22

Paul Barrett

I agree with a lot of what you say. The best Chinese manufacturing and the best Chinese higher education is as good as or better than that in the west. The quantity is much greater. The average level is still much lower. In many areas China still substitutes cheap labour for mechanisation and computerisation. This is true both geographically and in industrial sectors.

India is in some respects comparable. The elite is advanced but the vast mass of the people are still living much as they did centuries ago.

We need to work hard and more importantly work intelligently to keep our relatively better standard of living. In the very long run economies and living standards the world over will converge. They will probably never completely level out. Some countries have better access to natural resources, better weather, better political and social systems. Other countries are weighed down by corruption, sexism, racism, religious mania and all the other man made ills.

The criminal insanity that leads to global warming is the wild card that will change the fortunes of many parts of the world. While the changes are on average disastrous, some geographies will benefit.

report this

Jeremy Bosk

Aug 17, 2012 at 07:51

Just read Andrew Milne's 07:22 post.

I have never been to China but my brother has and agrees. I know and have known Singaporean and HK Chinese best. I have also met and worked with mainland Chinese students and researchers in the UK.

SIx or seven years back I attended a re-orientation event for mainland Chinese students planning to return home after graduating. Over six hundred of them listened and watched speakers from western and Chinese companies bidding for their services and guides from the British Council and private consultancies speak about the Chinese job market. Since, while most of the slides were in English, most of the speaking was in Mandarin, I had plenty of time to observe the students. They sat and listened without chatting to each other, without texting their friends, without fidgeting for over two hours. Then they asked polite and relevant questions. (Not all British born students are that self disciplined). Before and after the event I was with British researchers talking to the students. I was greatly struck by their national pride, their respect for their UK universities and their general UK experience. Most impressive was their seriousness of purpose. One young man was from a poor village whose inhabitants had clubbed together to fund his overseas studies. He was returning to China to get a good job and repay his moral obligations by funding the next generation of students.

Posturing by Obama and the loathsome antics of the US Republicans are disgusting. The UK should distance itself and be visibly better behaved. A good place to start would be by sacking Theresa May and sorting out the visa situation to make life easier for Chinese students, tourists and business people. China is impressive and does deserve respect.

report this

Anthony O' Grady

Aug 17, 2012 at 07:54

Perhaps the next citywire article should be, is it a good or bad thing that so many citywire blogs stray far away from the actual subject matter of the article?

report this

Jeremy Bosk

Aug 17, 2012 at 08:55


The real subject is bad government. Poor treatment of Chinese visitors is losing our tourism, export and education sectors business. Austerity includes cuts in help for exporters and destructive reorganisation of the inward investment agencies.

The government should use its credit rating to borrow and fund investment. So long as the return on investment is greater than the interest paid there is no problem. Taking on more debt will only impair our credit rating if the money raised is squandered.

Continued austerity reduces our productive capacity and thus our tax revenues. Meanwhile increased unemployment increases our spending and thus increases our debt. This does nothing good to our credit rating. An excellent credit rating is worthless if it is not used.

report this

Paul Barrett

Aug 17, 2012 at 12:20

To Andrew Milne.

Actually I have never been to China, have no real appreciation or knowledge of China or its's citizens.

I am literally Joe Public.

My view has been picked up third hand from media, publication in general press.etc.

Appreciate the Joe Public is not the cleverest of animals, but with the circumstances as they are even Joe Public can see the blindingly obvious.

I think the reninbi will become a reserve currentcy and then watch out,

Bye bye the euro.

report this

Andrew Milne

Aug 17, 2012 at 20:15

To Paul Barratt

Joe Public and Joan Public, I believe, are the most important people in the world.They work hard, pay taxes, raise families, and their opinion counts, because they are decent and honest.Joe and Joan are not fools, they absorb knowledge and think. And (I hope) they vote. You say you see the blindingly obvious, us ordinary guys do. We have open minds.We expect a fair deal.

We have a Prime Minister who, at Question Time, answers with abusive scorn to Older and younger Members.That's not debating, it's disgusting gutter-mouthing. I don'care where he went to school, or who his moneylending forbears were. See Wikipedia and laugh! These "privileged ones" are blind to reality and think we will just fall into line.The British Public are slow to anger, but it's a huge mistake to think they will put up with snobs and sneers instead of genuine care from our elected servants forever.We won't, will we!

I agree, the renminbi will displace the dollar, and who but Britain uses Sterling?

The yen will rise as the dollar and sterling are dgraded, the Chinese are not competing for this position, but once they have it, I believe they will act responsibly Because they are so like us.

Merkel is not.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire Guide to Investment Trusts

In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.

Watch Now

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add to your safe senders list so we don't get junked.


4 shares the pros are buying and selling

by David Campbell, Selin Bucak on Apr 16, 2018 at 04:00

Sorry, this link is not
quite ready yet