Theresa May's plan to end austerity in the UK is surprisingly good, Jim O'Neill says

  • When British Prime Minister Theresa May addressed Conservative Party members on the final day of her party's annual conference Wednesday, everyone wanted to know what she thought about Brexit.
  • But it was May's pledges to "end austerity" that were her most interesting — and timely — comments, according to economist heavyweight Jim O'Neill.
Protesters call for an end to austerity policies which lead to underfunding and staff shortages in the NHS, and demand that it remains publicly owned and accessible to everyone. June 30, 2018 in London, England.
Barcroft Media | Barcroft Media | Getty Images
Protesters call for an end to austerity policies which lead to underfunding and staff shortages in the NHS, and demand that it remains publicly owned and accessible to everyone. June 30, 2018 in London, England.

When British Prime Minister Theresa May addressed Conservative Party members on the final day of her party's annual conference Wednesday, everyone wanted to know what she thought about Brexit.

But it was May's pledges to "end austerity" that were her most interesting — and timely — comments, according to economist heavyweight Jim O'Neill.

"I'm surprised I'm going to say it, but what I caught of the prime minister's closing speech, she positively surprised me," he told CNBC's "Squawk Box Europe" on Thursday.

Speaking to Tory delegates Wednesday, May focused on repairing party unity, Brexit and, of course, made obligatory attacks on the oppositional Labour Party. But she also declared an "end to austerity."

"A decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off," May said.

O'Neill, the chair of international think tank Chatham House, and the former chairman of Goldman Sachs Asset Management, told CNBC that the pledge showed May and her advisors were attuned to public sentiment — that is, negative feeling — over public spending cuts in the U.K. that hit public services including the police and National Health Service (NHS) hard.

"The country wants, seemingly, something different," O'Neill said. "She gave a very clear statement that austerity is over and, I don't know about this (forthcoming) budget, but she's basically told the country that the pipes are being opened and public spending is going to start rising."

'Cloud cuckoo land'

O'Neill is best known for coining the phrase BRICS, referring to the emerging market economies of Brazil, Russia, India, China and South Africa. But he is no stranger to the U.K. government, having served briefly as a treasury minister in former Prime Minister David Cameron's government, charged with overseeing a boost to the economy in the north of England.

Cameron, who campaigned for Britain to remain in the European Union, resigned the day after the Brexit vote, but O'Neill stayed on as May took the reins, only to step down in September 2016 amid rumored tensions with the prime minister over her approach to China.

May's rival and Brexit critic, former Foreign Secretary Boris Johnson, shared his vision of a post-Brexit Britain on Tuesday, during a speech in which he said the government should be cutting taxes to stimulate investment.

O'Neill said ideas like that were out of "cloud cuckoo land" and were not in keeping with public feeling about the economy, including dismay at seeing corporate profits rise while wage growth remains muted, for instance.

"We've had many countries trying to lower corporate tax rate for the past decade, but one common theme across every Group of Seven country's expansion is that investment never goes up," he said.

"All it does is artificially boost the ability of companies to go on a borrowing spree to buy back their own shares and… reporting never-ending rising profits at the same time of never-rising wages is feeding the core of why many normal human beings are pretty cheesed off with life.

"So why say May's speech slightly surprised me in a positive sense is that somebody's obviously got her antenna going again for her to be sensitive to that."

Foreign secretaries

Brexit talks between the U.K. and EU have stalled in recent weeks with the issue of the Irish border remaining a stumbling block. May is reportedly working on a proposal that could see her seek an all-U.K. customs union with the EU and has received the tacit backing of Ireland for such a post-Brexit deal.

Whether the EU, or May's biggest critics that want a harder Brexit, will accept such a proposal remains to be seen.

O'Neill caused a stir earlier this week when he described May's rival Johnson, as well as current Foreign Secretary Jeremy Hunt, as "d***heads" because of comments they've made over Brexit and the EU.

Johnson has repeatedly criticized May, calling the prime minister's Brexit plan "deranged," while Hunt caused a furore by comparing the EU to the Soviet Union, although he backtracked on the comments when speaking to CNBC on Tuesday.

O'Neill responded by saying Johnson and Hunt should "stop being d***heads and saying such ridiculous things." Speaking at a fringe event at the Tory party conference earlier this week, O'Neill added: "It seems to be a particular honor of whoever happens to be foreign secretary to say evidently silly things."

Referring to those comments Thursday, O'Neill told CNBC that the "slightly unfortunate words" were "unbecoming of a chair of Chatham House," but said politicians like Hunt and Johnson were just trying to appeal to pro-Brexit members of the Conservative Party.

"If you look at such a mild-mannered guy as our present foreign secretary, to have said the kind of thing he said about the EU being like the Soviet Union, it is completely geared towards this very small thing called the Conservative Party membership. There's this positioning going on all the time."