Why it’s time to start buying shares again in George Osborne’s political stock

by Stephen Tall on September 17, 2012

“Buy low, sell high” — the most important investing principle and the hardest to judge. So here’s my risky punt: time to buy shares in George Osborne. And here are my three reasons for doing so:

1) His stock can’t fall much lower.
The last six months has seen the Chancellor take a pummelling, falling from Tory hero to Tory zero. What he thought was his crowning moment of glory — cutting the top-rate of tax — turned into the infamous Budget omnishambles of granny/pasty/charity/caravan/church tax U-turns which shred his reputation for political acuity and basic competence. The Tory press turned on him and anointed Boris Johnson as David Cameron’s heir-apparent. And then he was booed at the Olympics. Put simply, it’s hard to see how it can get much worse. Which means that if/when it gets better the media’s pendulum-narrative will work in his favour: he will be the comeback kid.

2) Any economic recovery will see Osborne’s reputation recover.
It appears the UK economy may be crawling out of double-dip recession and income levels may rise for the first time in five years. If so, this changes the political narrative with George Osborne able to proclaim that he was the politician butch enough to tough it all out even as some of his supporters doubted his Plan A and Osborne’s resolve. That will be how the story is told by right-wing papers falling back in love with the Chancellor as they re-recognise him as one of their own.

(To avoid doubt, by the way, I think this will if it happens make Osborne very lucky on two counts. First, the arbitrary decision to try and eliminate the deficit in five years (specifically to slash capital spending) was a mistake. Secondly, there are no counter-factuals in politics so my labelling Osborne’s Plan A a mistake is entirely unprovable.)

3) The Tories are lucky to have Labour as their main opponents.
Labour was always going to have difficulty rescuing its reputation for economic credibility inside one parliament. Yet so scattergun have their attacks on Osborne’s Plan A been that Labour has left the Tories with an open goal at the next election. Assuming there is a recovery — however fragile and faltering, however much slower it is as a result of Osborne’s policies — Labour will be on the defensive. Eds Miliband and Balls have more or less written the Tory script for 2015: Labour plunged the economy into debt-fuelled crisis; we’ve started to repair the damage; now let us finish the job. It’s a powerful pitch and I see no sign that Labour will have any counter to it.

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14 comments

New from me > Why it's time to start buying shares again in George Osborne's political stock http://t.co/l53MXm3U

by Stephen Tall on September 17, 2012 at 11:02 am. Reply #

New from me > Why it's time to start buying shares again in George Osborne's political stock http://t.co/l53MXm3U

by Simon_Goldie on September 17, 2012 at 11:06 am. Reply #

One for @TimMontgomerie @PaulGoodmanCH > Why it's time to start buying shares again in George Osborne's political stock http://t.co/l53MXm3U

by Stephen Tall on September 17, 2012 at 11:16 am. Reply #

One for @TimMontgomerie @PaulGoodmanCH > Why it's time to start buying shares again in George Osborne's political stock http://t.co/l53MXm3U

by Paul Goodman on September 17, 2012 at 11:26 am. Reply #

Why it's time to start buying shares again in George Osborne's political stock http://t.co/ns84FzEO

by BexhillBattleLibDems on September 17, 2012 at 12:32 pm. Reply #

New from me > Why it's time to start buying shares again in George Osborne's political stock http://t.co/jNve3YnZ

by Stephen Tall on September 17, 2012 at 2:02 pm. Reply #

I agree with your main point about Osborne’s political stock. That said, I’m not sure an economic ‘feel good factor’ will return until there is a convincing period of GDP growth and modest real income growth (say 18 months or more); and any nascent recovery could easily be killed off by the eurozone crisis flaring up again, particularly if it is based on the traded sectors of the economy as the government claims it wants. (Actually the OBR has tended to forecast growth based largely on consumer spending and households rediscovering the borrowing habit, but the government likes to keep quiet about this!)

The private sector job creation picture is reasonably encouraging, and is testimony to the efficacy of the labour-market reforms of the 1980s and 1990s and much improved good industrial relations in the private sector.

But I feel the real game-changer will only come when businesses have the confidence to invest, particularly the larger corporates that are sitting on big cash piles.

The government can’t wave a magic wand to unlock this, and much of it will depend on the wider macro environment. But it could help with a shrewd combination of demand- and supply-side action on everything from pump-priming capital investment, bolder deregulation of the labour market and reform of childcare, getting house-building going through planning and tax changes, more coherent and growth-friendly transport and energy policies, welfare reform, radical tax reforms along the lines of the Mirrlees review recommendations, and an end to centralised pay determination in the public sector.

While the coalition is doing bits and pieces in many of these areas, I’m not really sure it adds up to a convincing pro-growth agenda that will persuade businesses to locate and invest in the UK.

I would take issue with your implication that Osborne’s Plan A was distinctive for slashing capital investment. In fact, this is common to most fiscal austerity programmes I can remember, certainly in the UK. It was the centrepiece of Denis Healey’s cuts in 1976-78, for example.

Politicians simply find it easier to defer or cancel long-term investment projects than to get a grip on spiralling departmental costs and welfare/pensions spending.

And in fact, even in its original form Osborne’s plan didn’t involve cutting a penny more from the capital budget than Alistair Darling had committed to.
Thereafter Osborne topped up capex on a couple of occasions, so the overall profile of his cuts versus Labour’s was a bit more balanced. Labour planned big cash cuts to investment while lacking the courage even to freeze current spending in real terms.

The coalition is implementing extremely modest cuts in real-terms current spending (which may turn out to be more of an overall freeze depending on the benefit and debt-interest bills), compared to Labour’s planned 0.8% per year real growth. And it has marginally softened the cuts to capital investment.

Having said all that, I still think the balance is wrong and there is a strong case for easing the capital cuts significantly over the next 2 years (in order to kick-start infrastructure projects for both demand- and supply-side reasons), while being more ambitious about controlling ongoing recurrent spending in the medium term.

If public debt is ever to be brought back down to sustainable levels we should be thinking in terms of a multi-year cash freeze in total current spending once the unemployment and debt-interest costs have peaked. (This hasn’t been achieved since WWII, so will require more tough choices on things like the state pension age, universal pensioner benefits, defence commitments, the EU budget, industrial subsidies and other corporate welfare, as well as continued restraint of public sector pay and reform of procurement.)

by Alex Sabine on September 17, 2012 at 4:30 pm. Reply #

New from me > Why it's time to start buying shares again in George Osborne's political stock http://t.co/y79a2Abe

by Stephen Tall on September 17, 2012 at 5:02 pm. Reply #

RT @stephentall New from me > Why it's time to start buying shares again in George Osborne's political stock http://t.co/EHWRlrYQ

by HouseofTwitsLib on September 17, 2012 at 5:15 pm. Reply #

Why it’s time to start buying shares again in George Osborne’s political stock | Stephen Tall http://t.co/MRNTUs4E via @stephentall

by Richard Lucas on September 17, 2012 at 5:19 pm. Reply #

.@BenedictBrogan on Osborne salvaging his reputatn http://t.co/bNbnlwlc And me on why it's time to buy shares in GO http://t.co/l53MXm3U

by Stephen Tall on October 9, 2012 at 8:54 pm. Reply #

.@iainmartin1 had DUEMA (Don't Underest Ed Mili Assocn). I'm claiming BoGO (Bet on George Osborne) from 3 months ago: http://t.co/l53MXm3U

by Stephen Tall on December 6, 2012 at 10:39 am. Reply #

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