Tag Archives: Budget

CSR: Coalition learn a trick from New Labour

New Labour used to do this thing.  If they wanted to do something they knew would be unpopular with the Unions they would ‘leak’ that something far worse was in the planning.  Once it was time to officially announce the policy they would then ‘retreat’ from the position that had been leaked to what they always wanted to do in the first place.  So if they wanted tuition fees of £3000 they would first leak that they would be £6000, let people rage about it for a couple of months, and then announce the £3000 figure.  Folk would think that this didn’t sound so bad and it would feel like a compromise.  The passion would then be taken out of any opposition.  They could  then implement exactly what they had always planned.  They did it again and again throughout their reign.  It was quite a trick.

I can’t help but wonder if the Coalition has learned well from this technique.  For months we’ve had this 40% figure of expected cuts out in the wild.  Today we learned the figure is actually 19%.    It really doesn’t sound that bad now does it?

The more tribal Labour supporters have had 20th October circled on their calendars for months.  It was supposed to be the day that the ‘True face of the evil Tories’ would be demonstrated by these ‘savage 40% cuts’.  Winter fuel for pensioners would go.  Schools and the NHS would be slashed.  October 20th was going to be Armageddon.   If you believed the hype they have been spouting then today was supposed to be about the Tories rolling back the state all the way to Feudal times.  Instead, we find out that the intent is merely to roll back the state all the way to the public spending we last saw way back in…………….   2008.   Yes, for all the bluff and fluster public spending is going back to the same level it was at after 11 years of Labour rule.   School spend is protected.  NHS spending will increase.

The appropriate response today from all the doom-mongers should be relief and a slight feeling of churlishness.  Not a bit of it.  Instead a quick search of the blogosphere shows they are wallowing in a curious mix of disappointment and denial.  My personal hopes that a spell of Coalition government would edge us away from our tradition of tribal politics sadly seem as unlikely now as at any point since May.

Our failure to pull everyone into a new ‘grown-up politics’ means that for our politicians the ‘X-Factor’ still matters.   This is a problem for Osborne.  He has little love from the press or public and his delivery today was cursed by a frog–in-the-throat that we haven’t seen since IDS was in his pomp.  In comparison Alan Johnson stood up and was a Mr Charisma Snake-Oil salesman.   If you were to score Osborne and Johnson you would give a 10-nil win to Osborne on substance, but you would have to give Johnson a 10-nil win on style.  In 2010, for right or wrong, style impacts the voters more.  We should be pleased that AJ did not stand for the Labour leadership as he has an almost Blair like capacity to get the public to trust and like him.  I even, strangely, like him myself – I couldn’t help but chuckle at his shot at Clegg about his change of mind ‘between the close of polls and opening of ministerial car doors’.  And on a chuckling note, I also laughed out loud at some random lefty’s ironic twitter shout that “We need these cuts so that people like the contestants in the Apprentice don’t leave the country”.

All said, the medicine has been dished and it doesn’t seem as bitter as we have been steeling ourselves for.  Time will tell if we have held back too much and perhaps should have cut deeper.   The challenge now having announced the cuts is to get out there and deliver them and get this country back on its feet quickly.

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The Brutal Budget?

Well, I’ve just watched George Osborne come of age.  The ‘light-weight’, ‘inexperienced’, ‘young’ Chancellor gave an assured performance that will do wonders for his poor reputation.  It should also dispel some of the prejudice that still exists about the modern Conservative Party.

The spin that had been dripping out from Whitehall over the last few weeks could be summarised in one sentence: “This is going to Hurt”.  The facts about the economic situation were not in question –

  • For every three pounds we currently receive in tax receipts we are spending four on public services (i.e we have a significant structural deficit).
  • The National Debt is already £22,400 per head.

The nation could not go on spending like drunken sailors on shore-leave.  You cannot tackle the debt until you tackle the structural deficit.  You can only tackle the structural deficit in one of two ways – raise taxes or cut public spending.  The trouble for George Osborne is that neither is a popular thing for a Government to do.  But in some ways the choice was made for him, as he put it, “We are over-spending – We are not under-taxed”.  So with an impossible juggling trick demanded what is my gut reaction to what he has done today?

Well he had some pleasant surprises that may confuse those who cannot see the Tories as anything other than the ‘nasty party’:

  • The increase in the tax-fee allowance was inspired and will benefit those on the lowest pay.  I fully acknowledge that this was a Lib Dem policy but it is a credit to our Coalition that we really have cherry picked the best thinking from both Parties.  880,000 of the poorest working people taken out of tax.  Wonderful.
  • The raise in Capital Gains Tax will mean that the wealthiest in our society cannot be accused of not shouldering their share of the burden.  Those who thought the Tories were all about protecting the rich ahead of helping the economy have been proved wrong.
  • His surrender of forecasting powers to the Office for Budget Responsibility is absolutely the right thing to do for the country – but removes a key ability for him to ‘play politics’.  The best thing Brown ever did as Chancellor was give up the power to play politics with interest rates – Osborne takes this to the logical next step.
  • The acknowledgement that the banks brought about the financial crisis and the new measures to tax riskier aspects of their behaviour will be in tune with popular feeling and was the right thing to do.
  • Restoring the link between state pensions and earnings.
  • As a small-business owner I was delighted with the measures he put in place to give us a fighting chance of getting through the recession.
  • No cuts in capital expenditure.  A grown up lesson learned from the last time the Conservatives were in power in the early 1990s.

The headline will of course be about the rise in VAT.  For all the above the pain had to come and this is where the punch landed.  A tax on consumption does encourage individual prudence, but it also risks lowering consumer spending to the point that both retail and manufacturing are hurt.  The leap of faith (no doubt supported by economic modelling) must be that the proportional pain caused by the 2.5% rise is counterbalanced by the good to the economy from the reduction in structural deficit.  We need to monitor this closely and make sure the economic modelling is correct – if it backfires we shouldn’t shy away from course-correcting quickly.

Obviously, much of the pain is also going to be felt by the Civil Service when the departmental cuts have to be worked through and Councils as they struggle to work within the constraints brought about by a council tax freeze.  The challenge for both Civil Service and Councils will be to deliver those reductions with the same equity and tone that the Chancellor managed today – and crucially without hitting the public perception of service delivery.  Ultimately, for right or wrong, it will be that upon which the Coalition is judged.

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