Osborne gets Dickensian on debt - so why doesn't he also turn Victorian on the bankers?

George Osborne likes to talk tough on debt.

And, despite almost doubling Britain’s burden in cold hard cash, we know this kind of rhetoric – however divorced it may be from reality - is relatively popular because he was re-elected on a platform of promising grinding austerity to get the debt down.

To be fair, Osborne is not the only Chancellor who has compared his Government’s budget to a family purse and said Britain will not to spend beyond its means.

Over the last five decades, this has been a commonly repeated assurance by both Tory and Labour residents of No 11 Downing Street.

Yet in only seven of those years has the Chancellor actually managed to run a budget surplus, including three times during Brown’s tenure.

This is because every one of these men – yes, the job remains the only Great Office of State never to be held by a woman – is a politician.

Therefore, as elected officials and not paid accountants or economists, they are always more than happy to fund any project that will keep them in power.

However much Osborne says he wants to reduce the debt, he won’t withhold his chequebook from paying soldiers, funding pensions or preventing the NHS from totally collapsing.

He knows that a vital chunk of Tory voters, however much they like his good housekeeping banter, would not forgive him or his party if he did.

Osborne, though he likes to keep schtum, also knows that the Government, just like a business borrowing to invest or a family taking out a mortgage to buy a house, does not have to live within its means and often needs to borrow and spend to keep the economy going.

For ideological reasons, of course, he won’t increase the funding of Britain’s struggling public services, which is by far the best way to boost growth.

But he is more than happy to hand out tax cuts and subsidies to house buyers – measures that best help the richest and add relatively little value to the wider economy.

As a politician, just like Brown before him, he also spends an inordinate amount of time dreaming up policy traps for the opposition to fall into.

Osborne’s latest wheeze is a new budget surplus law to force future governments to pay down debt “in normal times” and only run deficits in “extraordinary” ones.

He is challenging Labour to support the plan, so that if it doesn’t the party can be painted as reckless and, if it does, it will be to forced to pledge to fund new investment through higher taxes.

Osborne will also bring back a Victorian “commission for the reduction of the national debt” to ensure Governments don’t overspend.

Of course, this is a ridiculous gimmick. The concept of “extraordinary times” will be ill-defined and governments will simply dance around it – and rightly so.

Never running deficit defies sensible economics.

And, furthermore, the way to reduce a national debt is not to worry about it in cash terms, but to spend and grow the economy so that it falls as a proportion of national income – as Britain did exceedingly well after 1945 when the burden stood at 215% of GDP, compared to 80% today.

This message was reinforced last week when the International Monetary Fund, which is not an organisation known for tolerating fiscal recklessness, said that Britain could afford to live with high debt “forever” and should let the ratio fall “organically”.

But of course, Osborne is a politician – and a supremely dogmatic Tory one at that – and he knows that his obsessing over the debt is both popular and allows him to continue his real long-term economic plan of rolling back the state at whatever the cost and making sure that the return of high public spending, especially that financed properly with higher taxes levied from the very rich, can never happen in the future.

And his latest surplus guarantee and debt commission gimmicks were plucked out of the same political barrel.

If he really wanted to get Dickensian with debt, why does he not also turn Victorian on the bankers?

By that I mean punish those who caused the crash and whose dominance leaves our economy dangerously unbalanced and at risk of having to bail them out again.

Yet, instead of jailing those at fault as surely his hero Benjamin Disraeli would if such a disaster had fallen in the 19th century, bankers have been let off with early retirement and stripped of the odd knighthood while the crooked enterprises they ran have continue to evade proper regulation.

This week that tax-exile-encouraging monolith HSBC, added insult to injury, by affectively holding Britain ransom by sacking 8,000 staff after having threatening to quit the UK over the government’s bank levy.

Part of the reason why Osborne won’t do anything to tackle our blackmailing banks, such as copy America’s threat to break them up if they can’t prove they’re small enough to collapse without bringing down the financial system, is that he is determined that the City should remain the backbone of our economy, even though it has been so reckless and woeful at spreading prosperity.

It also helps that financiers in the Square Mile also provide half of the Tories’ funding.

The other reason why Osborne won’t square off with the banks – or order a long overdue inquiry into what went wrong in the 2008 crash – is that it would risk blowing apart his false narrative that Labour spending cause the global disaster.

Yet, for all his whetting of appetites for 19th century-style fiscal rectitude, some of hallmarks of the Victorian era – rising inequality, job insecurity and a pitiless elite - may also come back to bite him.