Asking for a ‘plan B’ on the economy

The Treasury is not disputing Philip Stephens’ report in the Financial Times (FT) that Sir Gus O’Donnell is asking for a “Plan B” or “possible stimulus measures” to be worked up in case the economy stalls. Philip Stephens reports that the document suggests, amongst other things, that the Bank of England might have to “lend directly to business through buying commercial as well as government bonds.” That’s something that Mervyn King would be extremely wary about, to put it mildly.

This memo was very much not the Treasury’s idea and not something that has hugely impressed it. Obviously Sir Gus O’Donnell is involved, as the author, but you would assume that Jeremy Heywood, the Prime Minister’s  right hand man and “the real Deputy PM” or “the real PM” depending on who you talk to in Whitehall, would be involved too. Whoever is behind it has clearly annoyed George Osborne and he is not a man to be lightly crossed.

UPDATE

Talking of Gus O’Donnell, he’s been busy on another front trying to codify how the country is governed. Lurking inside his Cabinet Manual is what looks like a gentle rebuke to Gordon Brown. Writing about what is right and proper constitutionally when there is no overall majority for any party after a General Election, the Cabinet Secretary writes: “The incumbent Prime Minister is not expected to resign until it is clear that there is someone else who should be asked to form a government because they are better placed to command the confidence of the House of Commons and that information has been communicated to the Sovereign.”

That’s not quite how it felt to Gordon Brown on Tuesday May 11, when he resigned as PM before Buckingham Palace wanted him to and before David Cameron could be 100 per cent sure his Coalition with the Lib Dems was cemented.

The document ducks coming to any conclusion about who a minority party like the Lib Dems should talk to first after an inconclusive General Election and suggests, by citing the precedent of Nick Clegg wanting to talk to the Tories as the party with the biggest mandate, that the old notion that the incumbent got first dibs even if no longer the largest party is no longer the case.