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Wednesday, 21 September 2011

The Inevitable Plan B



Another day, another growth forecast downgrading UK economic growth.

The IMF are predicting UK GDP to grow just 1.1% in 2011, 0.4% reduction from its previous World Economic Outlook report in June. This is not the first time the IMF has cut their growth forecast for the UK economy. In April they predicted 1.7% and in January 2%.



If you take this with the OBR’s forecasting, it’s clear that no one really knows what’s going to happen. All we know is that we’re in for a bumpy ride. What we do know, however, is that the UK Government “remains committed to implementing the deficit reduction plan which has delivered stability”. Put simply, no Plan B for growth. Cue Ed Balls

“The IMF is saying very clearly that if slow growth continues in the UK the Government should change course and adopt steadier deficit plans… That’s why we need a real plan for jobs and growth, here in Britain and around the world, and we need it quickly.”

The more Labour press for a Plan B or the Scottish Govt call for a “Plan MacB”, the more the Coalition Govt dig in their heels. The reluctance is understandable from a political perspective in that they don’t want to be seen to be taking advice from the opposition.

But more fundamentally, their credibility as a Government is tied up with the deficit reduction strategy. Remember, this isn’t just an economic reaction to the UK’s mushrooming debt crisis but an ideological wish to create a smaller state.

If they admit they were wrong about this, the argument goes, what else were they wrong about? All of this creates uncertainty and indecision and breeds weakness. Or does it? I’m not convinced. Neither am I convinced that the Coalition is slavishly going to stick to a Plan A that is clearly not working.

Behind the scenes, the Treasury will be working on a Plan B (of course, they will have to call it something else). In fact, they might have it. I don’t have a source to validate this theory, but I do have history.

An excerpt from Bob Woodward’s “The War Within” (p85) illustrates my point. It’s August 2006 and slowly but surely it is dawning on the Principals that their current strategy in Iraq - “clean, hold and build” - is failing catastrophically.

National Security Adviser Stephen Hadley is leading a review of the strategy, while simultaneously the Administration publicly reaffirms their belief that the current plan is working.

“No, I don’t believe that it’s failing” said Secretary of State Condoleezza Rice.

“But, is there not some discussion about what happens if it doesn’t work, a Plan B?” asked the reporter.

“What you want to do is settle on a plan and then press as hard as you can to make it work. And that’s where everyone’s energies are at this point, and I think this plan is going to work” replied Rice.

The Coalition Govt has, or are working on, a Plan B. What they need to find is an exit strategy to sell it.

Barry McCulloch, CSPP Policy Manager

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