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George Osbourne was at the centre of a political storm last night after being accused of lacking judgment in predicting a 'run on the pound' amid Britain's gravest financial crisis since the Thirties.
The shadow Chancellor was forced to defend himself after Labour aides and small business organisations accused him of talking down sterling despite a convention that politicians do not predict currency collapses. Kenneth Clarke, the man some MPs now want to replace Osborne, had to ride to his rescue, insisting his words were 'perfectly sensible'.
As Gordon Brown used his appearance at an international economic summit in Washington to showcase what is expected to be a multi-billion-pound package of tax cuts for low and middle earners, coupled with public spending to kick-start the economy, a defiant Osborne last night raised the stakes.
He said Britain was already witnessing 'the largest fall in the pound in modern British history' with a 30 per cent devaluation, amid speculation of borrowing to fund the pre-Budget report's package of tax cuts and spending.
Brown's policies were 'one of the reasons' rather than the sole cause of the sterling crisis, he acknowledged, but he added: 'Now behind-the-scenes spinning from the Prime Minister and his entourage in America is fuelling speculation that the government is planning to borrow recklessly for a big, unfunded tax con. That will leave the British people with higher debts and higher taxes in years to come.'
Significantly, however, Osborne did not repeat his prediction in the Times yesterday of a future sterling collapse. His comments came as the Tory leader, David Cameron, failed to issue a supportive statement, an omission seen as significant after Labour aides accused Osborne of 'a desperate last throw of the dice to save his career'.
With a YouGov poll for today's Sunday Times showing that the Tory lead over Labour has narrowed to five points, its lowest in comparable polls this year, the shadow Chancellor's future could depend on the currency markets. If the pound - which sank to a 13-year low on Friday - plummets further this week he risks being blamed.
Brown, who hinted that people could start feeling the benefit of his fiscal package even before Christmas, dismissed claims it would damage the economy, although he avoided discussing any impact on sterling. 'People are looking to politicians to be responsible and to show leadership,' he said.
After the Washington summit of 20 nations, the Prime Minister said: 'There was widespread agreement that at a time like this when the world faces huge uncertainty ... this is the time you need to support our economies.'
Plans under consideration to inject cash into the ailing economy and help the victims of a downturn include proposals to build more council housing to help those who have their homes repossessed. Figures this week from the Council of Mortgage Lenders are expected to show another sharp rise in repossessions, while Whitehall officials estimate evictions by banks will add 9,000 people to council-house waiting lists this year.
The falling pound is a concern because it creates pressure to keep interest rates high and makes commodities priced in dollars more expensive to import. It is also a sign of dwindling investor confidence in a country.
Clarke insisted last night that there was no convention preventing politicians discussing currency movements: 'The foreign exchange markets had already made their minds up about the pound, regardless of any political comment. Gordon Brown reminds me of Harold Wilson blaming the weakness of sterling on people "selling the pound short" when it had already been weakened by his government's own policies.'
However the row has not helped Osborne's reputation, already weakened by the controversial meetings with Russian oligarch Oleg Deripaska and the lukewarm reception for his own economic proposals. Yesterday Tory party donor Lord Kalms, a supporter of former shadow Home Secretary David Davis, demanded that Osborne be replaced as shadow Chancellor by Davis.
Labour officials said it was 'unbelievable' that Osborne would discuss the weakness of sterling at such a sensitive time, arguing that his remarks could be the catalyst for a run on the pound that would make it harder for the Bank of England to cut interest rates. 'What he said could result in the very outcome he was warning about,' said a senior government official.
Stephen Alambritis from the Federation of Small Businesses warned: 'It is important that politicians rally together at times like these and do not use terms like "run on the pound".'
- George Osborne
- Gordon Brown
- Economic policy
- Currencies
- Conservatives
- Government Borrowing
- Interest rates
- Interest rates
- Credit crunch
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