Osborne's 'remarkable' cuts package gets US seal of approval

A big surplus in the public finances and a policy thumbs-up from the US Treasury Secretary - a good day for George Osborne....

by Emma Haslett
Last Updated: 06 Nov 2012
The UK public finances took a turn for the better in January: the Office for National Statistics said today that public sector net borrowing showed a £3.73bn surplus last month, thanks largely to higher income tax receipts. That's the biggest surplus since July 2008, and a welcome improvement on the £1.26bn deficit recorded this time last year. Good news for the Government - particularly since it comes on the same day that US Treasury Secretary Timothy Geithner, who's not exactly known as a deficit hawk, has been busy telling the BBC that he's 'very impressed' with George Osborne's austerity measures...

Geithner's seal of approval is a little surprising. After all, while the UK Coalition has been trying to shrink state spending, the US approach to the downturn appears to have involved spending even more money and ramping up their national debt to ever-more-ludicrous levels in the pursuit of growth (not to mention the $1.7trn and $600bn injected into the US economy by the Fed via QE). Just yesterday, Geithner slammed a $60bn austerity package just passed by the US House of Representatives, saying it would ‘undermine and damage our capacity to create jobs and expand the economy’. And during the World Economic Forum at Davos, he said pretty plainly that rapid, drastic spending cuts were ‘not the responsible way’ to cut deficits.

Yet in his interview with the Today programme, Geithner applauded George Osborne’s response to ‘problems not created by this Government', saying that he 'locked his Government into a set of reforms that were very good’. (To further ingratiate himself with the Treasury, his only criticism was of Labour's much-maligned 'light-touch' approach to financial services regulation, which he says was ‘designed consciously to pull financial activity from New York and Frankfurt and Paris to London'; this, he rightly says, turned out to be a 'deeply costly strategy’.)

So how does Geithner square away this apparent contradiction? Well, he argues that the two countries’ respective situations are very different; the US has a smaller structural (i.e. underlying) deficit, he says, plus better growth prospects (although cynics would argue that that's due to all that spending), and, more pointedly, a ‘much smaller Government’, which is paying out less than it’s bringing in.

Speaking of which, even the UK managed this in January – and in some style too, thanks to that big jump in income tax receipts. The Government is clearly wary about claiming this as validation of its approach; after all, if things seem to be picking up, there’ll be even less appetite for austerity. But if you’re trying to win a political argument, the backing of the world’s most powerful country always helps.

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