International Monetary Fund (IMF) chief Christine Lagarde hasn’t always agreed with chancellor George Osborne, particularly over the latter’s dogmatic attachment to austerity. But they do seem to be on the same page when it comes to infrastructure.
Asked about Osborne’s recently-announced plans to hike infrastructure spending in the UK, Lagarde came out with what appears to be a clear endorsement. ‘It is a win-win for the economy,’ she said at the IMF’s summit in Lima. ‘It supports growth and activity in the short term, puts people to work, [and] improves medium to long term potential for growth.’
For a major figure in global finance, that’s the equivalent of clicking the like button on a Facebook status – a sign of broad approval, but not necessarily to be taken as support for every aspect of it (as in, you like the fact your friend’s in Morocco, but hate what they’re wearing).
Osborne showed he’s not all about cutting the national debt this week, saying he would raise infrastructure spending by £5bn. While he was at it, he also said he would create an independent body to determine what spending the UK needs for infrastructure, nabbing Tony Blair’s old ally Lord Adonis from the Labour Party to oversee it.
Lagarde’s support isn’t hugely surprising – she’s long said developed economies need to invest more to boost growth, and it’s hard to deny Britain would benefit from having some more money in its transport networks.
The interesting question is how it will be funded. Osborne plans to find the money, which could help with projects like HS3 (for the ‘northern powerhouse’) or Crossrail, by selling off state-owned assets. That’s all very well for now, but such sales can only realistically go so far. To take it further would surely require a toss-up between raising the money in taxes (which on balance probably wouldn’t create jobs) or through borrowing (which would create jobs but is anathema to the Tories).
Lagarde hasn’t lost her antipathy to austerity, especially now that she thinks emerging markets might be about to cause another crisis. When asked whether she thought Britain had the ‘fiscal space’ (breathing room to borrow without harming stability) to fund this project, she said: 'If the fiscal direction imposed by government is heading to stability and inspires confidence, it’s really an excellent choice.'
That’s a nicely ambiguous answer. It could mean she thinks Osborne’s record of austerity means Britain could - and should - now borrow to fund it without causing any problems, or it could mean she’s actually pleased with the way he’s currently planning to do it.
Osborne, for one, probably won’t care. It’s not as though anyone would actually listen if Jeremy Corbyn used comments from Christine Lagarde to attack the soundness of his economic policies, after all.