Osborne’s choice

Only days away from this year’s budget and the press is heaving with lobby groups and special interests calling for a few coins to be cast their way by our beleaguered Chancellor of the Exchequer.

The biggest of the business groups, The Confederation of British Industry (CBI) is making a plea for investment in Britain’s wounded construction industry. House builders have been for many years among the most aggressive investors in the UK, supplying eager buyers with neat housing provided by a neat business model that churned out profits and seemed impervious (or at least weathered) to previous recessions over the last half century. Not now. It is fair to say that the stuffing has been knocked out of the construction industry, big time.

I talk to property developers and builders day in and day out and can vouch for the fact that little in this country is getting built at present.

The CBI has called for a £1bn investment in house building to commence immediately. In the United States this type of project is favoured as it is considered “shovel ready“, meaning that work can commence quickly and the return on the investment recognised early.

At the same time the CBI reiterates that it is not calling for this to be new money. This is categorically not more borrowing. The £1bn is to be scratched from some other budget and is therefore not going to be won without a fight. Cash-starved Government departments are unlikely to let go of £1bn easily.

But it is correct. This should not be from new borrowing, for the CBI is a canny bunch which knows and fears the real “big beast” that stalks us all, an angry bond market. The real danger to growth and to our future prosperity is a massive and uncontrolled rise in interest rates that would occur if the international markets thought, even for just a second, that the Chancellor was getting squishy about deficit reduction.

Just recently the Norwegian Sovereign Wealth Fund dumped almost half its holding of Gilts in what might be seen as an ugly shot across the bows. The message from the international markets is clear. “Don’t even think about printing money.”

George Osborne has no choice. He can tinker around the edges and shift money from one pocket to the other, but let’s not expect too much from this budget, because that is what we will be getting.