Economy

If there's one thing distinguishing this morning, then it's just how placid everything feels.  The clouds are moving sluggishly across the sky; there's little excitement about the measures expected in the Budget; and there are no stories about rifts between the Prime Minister and the Chancellor.  Indeed, Downing St insiders tell the FT that relations between Gordon Brown and Alistair Darling have been "pretty good" in the run up to the Budget, because both are "broadly agreed on the strategy of halving the deficit in four years while backing growth initiatives." Many are taking this as a sign that Darling and Peter Mandelson have won out in their efforts to coax Brown away from the crude "investment vs cuts" thinking of yesteryear.

The public remains infatuated with Vince Cable. A Politics Home poll reveals that 31 percent want Cable to be chancellor. It’s a crushing endorsement: Don’t Know is his nearest rival on 24 percent, followed by Ken Clarke on 16 percent. Cable’s reputation rests on his sagacious airs and an apparent contempt for party politics. His eminence is baffling. Fleet-footed fox-trotter he may be; economic guru he is not. Andrew Neil's interview shattered Cable’s invincibility. The Sage of Twickenham admitted to changing his mind over the HBOS Lloyds merger and his constantly shifting position on cuts was exposed. Add to that the ill-thought out Mansions Tax and Cable begins to look leaden. The Tories and Labour should emphasise Cable’s intellectual shortcomings.

George Osborne must have changed breakfast cereals, or something, because he's suddenly a different man.  After the Tories muddied their economic message to the point of abstraction a few weeks ago, there's now a new clarity and directness about the shadow chancellor's languange.  Exhibit A was his article in the FT last week.  And Exhibit B comes in the form of his article for the Sunday Telegraph today. It sets out five deceptions that we can expect from the Budget this week, and are all punchy and persuasive in equal measures.  But it's the first which, as I said on Friday, is the most important: "The Chancellor might be so brazen as to claim he has a 'windfall' because it turns out he has to borrow a few billion pounds less than he forecast in the autumn.

George Boateng, Alan Milburn and Andrew Smith have written a letter to George Osborne, calling him to task over the contradictions in his policy. 'It is not clear to us whether these mixed messages are a deliberate attempt to obscure your plans or a symptom of a confused approach to policy but either way the public deserves better.' Fair enough. Osborne's policy has become more concrete in recent weeks, but much remains still to do. Peversely, I think they've given too much detail, and have been found out because they haven't seen the nation's books.The reduction in the amount of cuts that are planned is a case in point. But talk about hypocrisy: take a look at Labour's economic policy in the run-up to the budget. They are certainly clear on cuts: there aren't going to be any.

The gods are smiling on George Osborne. On Monday, he wrote an excellent article in the FT, explaining why he opposed the government’s fiscal plans and giving a brief sketch of his alternative vision. It was a short, sharp, shock article that contrasted with the tentative and nebulous announcements that characterised the Tory post-New Year slump. They were immediate benefits. On Tuesday, the EU Commission broadly supported the Conservative position on reducing public spending, and today a City AM poll indicated that 77 percent of a panel of City experts think that cuts must be made this year. Indeed, many panellists rejected Samuel Brittan’s contention, elucidated in last week’s Spectator, that the markets expect the continuation of current strategy.

So, we have a date for the Chancellor’s debate. Channel 4 News will host Darling, Cable and Osborne on Monday the 29th of March at 8pm.   I have a suspicion that George Osborne will come out of this debate rather well. He doesn’t have an expectations problem, unlike Cable, and is quick on his feet. Most importantly, the facts are on his side. It is also worth remembering, as one Tory MP reminded me earlier this week, that since becoming shadow Chancellor Osborne has never failed on a set-piece occasion.   One thing that Osborne must do in the debates is make sure he takes on Cable as well as Darling. Cable’s reputation is over-inflated and Osborne has an opportunity to score some points by highlighting the contradictions in Cable’s record.

The Daily Politics featured a telling exchange between Stephen Timms and Ken Clarke. Their arguments were unclear and their hypotheticals relentless - they were debating deficit reduction. A football phone-in DJ had been invited onto the programme to adjudicate. After 7 minutes he broke his befuddled silence and declared, understandably, that Clarke and Timms were a turn-off to ordinary voters. Immediately, Clarke responded clearly and directly, making a case for reducing the deficit with reference to the chillingly close reality of Greece’s collapse. He avoided patronising, homespun economics; and simply delivered bald analysis and a statement of intent with his characteristic gusto. By contrast, Timms remained silent. Clarke is the Tories’ prize-fighter.

David has already blogged about George Osborne and Jeffrey Sach's article in the FT this morning.  But it's worth returning to what is as clear and as unalloyed a statement of Tory policy on the public finances as you'll have seen over the past few months.   What I find most impressive about the article isn't so much its loose, perhaps nebulous, prescriptions for the economy - although they're sensible enough - but rather the way it acknowledges how some prominent academic and public figures hold a different view of things, and explains, in straightforward terms, why the Tories don't agree with them.  For instance: "The financial models underpinning the two camps differ.

Liam Byrne told The Daily Politics yesterday that Labour would reduce the deficit without raising additional taxation to that which is already planned. Iain Martin describes this pledge as being akin to a chocolate fireguard. He’s right. It’s less realistic than a Jeffrey Archer novel. As Andrew Neil notes, Labour plans to reduce £82bn from the deficit by 2014 with £19bn in tax rises and £38bn in cuts. They bank on economic growth eradicating the remaining £25bn. The government’s optimism for Britain’s economic prospects is touching but scarcely credible on the basis of 0.3 percent growth and the frightening trade deficit. Andrew Neil observed that Byrne was armed with books of notes and briefings.

Nick Clegg is the rage of the papers this morning. His interview with the Spectator is trailed across the media and the Independent has an interview where Clegg once again lists the four demands that would be his initial negotiating tests for backing a minority government. They are: - Raising the income tax threshold to £10,000 through taxes on the rich. - An education spending boost for the poorest in society through the 'pupil premiums'. - A switch to a Green economy, less dependent on financial services.  - Political reforms at Westminster, including electoral reform. What to make of that quartet? There is much that is sensible, much that is not, and still more that is unworkable.

So now we know.  Gordon Brown has just announced that the Budget will be on 24 March – which strongly implies an election date of 6 May.  Brown could dissolve Parliament on 6 April, the manifestos would be published on 12 April, and then we'd be into the campaign proper.  Which means even more speeches, polls and dread speculation than we're getting now. As for the Budget's general flavour, we'll probably get an idea of that today, too.  Brown's currently giving a speech in which he's brushing over recent tremors in the markets, to say that we are "weathering the storm; now is no time to turn back".  Which comes straight off the same old hymnsheet: let's stick to our current deficit reduction plan (such as it is), and turn up the spending taps this year.

Why does Britain fall for financial spin so often? The question goes well beyond the great confidence trick of Gordon Brown's ten years in the Treasury. I'm just back from three weeks in Australia. What’s always struck me in the years I’ve gone there is how different the newspapers/news shows/political debates are. They are well informed about macro-economics, and there is much less of the spin/personality culture of the mainstream media in the UK. Canada is exactly the same. Last week, the Canadian budget was published – a very clear and credible path to getting budget back to balance within three years.

It is a calculation that should fill all of us with an immense sense of dread: there is now a 72.2 percent chance of a hung parliament. Or so says Michael Saunders, Citigroup's chief European economist and the one man in the City everybody listens to when it comes to the interaction between parliamentary politics and the financial markets. His model, which incorporates the standard data about the Westminster first-past-the post system, and into which he has fed all of the latest polls, also suggests that there is just a 6.2 percent chance of strong Tory majority, a 19.1 percent chance of a weak one and 2.5 percent chance of a Labour majority.

Brown bunked off PMQs today, claiming a prior luncheon engagement with President Zuma of South Africa. Downing Street blamed the Queen for double-booking the PM. Can that be true? The head of state deprives the Commons of its democratic right to shout ‘Answer the question’ at a block of granite. Perhaps she had their best interests at heart. Hattie Harman, replacing the PM, turned up in a pair of alarmingly shrill pink glasses. Opposite her, William Hague wore a sober suit of inky blue. He looked ominously business-like as he aimed his first shot at her. Why had Brown cut the helicopter budget while the country was fighting two wars? This sent Hattie scampering to her dressing-up box of muddled phrases.

A persuasive passage (complete with a spiky, ministerial quote – highlighted) from Rachel Sylvester's column this morning: "There is growing concern among some Shadow Cabinet ministers and strategists about the increasingly aggressive tone Mr Cameron uses against Mr Brown. It is, they believe, no coincidence that the poll gap has narrowed as the Tory leader launches a series of increasingly vitriolic personal attacks on the Prime Minister. Last week, for example, by turning the bully into the victim, Mr Cameron seems to have simply solidified support for Mr Brown. There was a similar backlash to the Conservatives’ misleading 'death tax' poster campaign.

Forget the polls, the markets should be enough to give any of us a sharp dose of The Fear.  Exhibit A: Sterling, which has slumped below $1.50 today, for the first time in nine months, and on the back of what analyists are calling "deficit worries".  And Exhibit B: the UK Gilt markets, where rising interest rates suggest that investors are rapidly losing confidence in Britain's ability to pay back its debt, just as Coffee House's Mark Bathgate warned a few months back.  Check out the FT for the full story. Of course, I say "forget the the polls" – but this is all very poll-related.  The possiblity of a hung Parliament – and, with it, the possibility of political paralysis – is preying heavily on the minds of investors.