A day for resentment?

June 22, 2010 by · 2 Comments
Filed under: Credit crunch, Politics 

If anyone’s interested and not watching the footie, I am at 9.15 this evening taking part of what may be an interesting conversation on Radio 3’s ‘Night Waves’ about ‘resentment’. I think we will start off talking about the nature of resentment and how it is different from, say, a sense of injustice. The conversation may then turn to today’s budget and ask where in British society we might see resentment emerge as we move into a four year period of higher taxes and service cuts.

Probably the last thing readers want is more budget analysis, but as it is such an important statement and, as I wrote about it yesterday, I thought I might share my top lines.

The budget can be looked at socially, economically and politically.

Socially, it is fair in one sense and unfair in another. Fair in that the tax and benefit pain is reasonably evenly distributed, although even the Treasury’s own figures show the poorest ten percent being the second hardest hit decile overall. Unfair in that some will argue we should give extra protection to the poorest in hard times, and because the public spending cuts to come are almost certain to impact the poorest hardest.

Economically, the whole package rests on the expectation that the private sector will grow steadily and strongly. If this is the case then the Coalition may well be in a position to reduce and even halt planned expenditure cuts in years 3 and 4 of the plan. If the private sector doesn’t grow, then not only might it be that the plan is judged to have been misguided (as Labour is arguing) but the consequences of cuts – especially on overall unemployment – will be much worse than today’s Treasury predictions

Politically, as I said yesterday, I suspect the Coalition will get reasonable support for its boldness for some time, maybe 18 months or so. But by the time we get to autumn/winter 2011 the Government will be badly in need of good news to maintain its cohesion and its support in the country. Of course, a lot depends on how Labour behaves. Its response today was, to my mind, too shrill and short-termist. Most voters do blame Labour for the state of the public finances, and if there isn’t a second economic downturn (most economists don’t think there will be), then Labour will have its dire predictions thrown back in its face.          

The final note is that I am non-plussed about how the Coalition is going to reduce education expenditure by 4-5% a year for each of the next four years while at the same time introducing a generous pupil premium and funding an expensive policy of supporting free schools (something which relies in the short term on allowing more surplus capacity in the system). Michael Gove is not stupid and he is a powerful figure in the Coalition. It will be fascinating to find out how he hopes to pull this off.

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Four budget talking points

April 22, 2009 by · 2 Comments
Filed under: Credit crunch, Politics 

A new  dividing line?

One reason Labour lost in the eighties was that the Conservatives won over the aspirational working class and lower middle class. Labour was perceived to be the party only of the poor and the public sector. Today Alistair Darling tried to draw the line in a different place: between the middle class and the rich, hoping the Conservatives will stumble into the trap of being portrayed as only representing the interests of the latter. David Cameron’s initial response that cutting the 50p tax rate won’t be a priority for an incoming Conservative Government suggests he will avoid that trap (but look out for a backlash from Tory traditionalists who may want to insist that the Conservatives make this, at least, an aspiration for their first term).

Growth: Short and medium term

The Government’s medium term growth forecast (3.5% from 2011 onwards), for which Labour will not have to answer at the next election,  is very optimistic; its 2010 forecast of 1.25% (for which it will) may be more realistic. Alastair Darling will hope he will  be able to report next spring the economy is hitting or even exceeding the 2010 target. And if Labour scrapes a victory at the election and then misses the more ambitious target for 2011 it will have until 2014 or 2015 to change the script.

Efficiency savings and cuts

Already the IFS and others are questioning whether the £5 billion in efficiency savings for next year can be achieved without service cuts in areas like health and education. I suspect not. However, Labour won’t necessarily be too worried about this. Even if people are suspicious about Labour on cuts it won’t automatically make them warmer towards the Conservatives.

1991 or 1996?

I wrote a blog a few weeks ago asking whether today feels more like 1991 (before a  Government re-election) or 1996 (before an Opposition landslide) . Commenting on the budget a Government insider reminded me of this saying;

‘By next year we will be just emerging from recession; roughly the same point in the cycle as 1992. Most people’s focus will be on day to day living standards – we need to have a powerful case to make then’

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Things to bear in mind on Budget Day

April 22, 2009 by · 3 Comments
Filed under: Credit crunch, Politics 

It’s difficult to see how the Government gets a good story out of today’s budget, especially coming on the same day as new, presumably grim, unemployment figures. The question for the press is which of the three lines of attack they choose: ‘borrowing out of control’, ‘public spending to be slashed’ or ‘tax bombshell’.

There will no doubt be some items the Government hopes will get positive coverage, possibly green measures, like the ‘scrappage’ scheme (‘green’ because new cars are generally more fuel efficient and environmentally friendly than old ones) or the electric car subsidy we heard about the other day. But the headlines will still be overwhelmingly bad.
In all the analysis it’s worth remembering that, in the end, so much depends on something which is neither easily predictable nor largely in the Government’s hands; namely how quickly growth returns (globally and nationally) and how strongly when it does.  The opposition parties may disagree with Alistair Darling’s projections today, but the crucial unknown is how quick and how strong the recovery will be.

If there is a slow, sluggish recovery, we really do face a period of austerity pincered between high unemployment, high and rising real tax rates, and deteriorating public services.  In a stronger, faster, recovery, whilst the ‘proceeds of growth’ might not be available for tax cuts or real spending increases, it would be a matter for economic and political judgement as to how quickly we paid off the aggregate public debt (which unlike the UK’s current account deficit is not outlandish).  In this sense, the question for Darling’s budget is less ‘what does it mean?’, and more ‘will it work’?  And, of course, nobody really knows the answer to that.

As interesting as the detail of the budget will be the tone of the Conservative reaction.  Given that David Cameron and George Osborne pretty much know the figures, they have had time to work on their response, so it will tell us a lot about their political strategy. It isn’t as simple as this, but the big dilemma may be whether they go on full out attack and in doing so run the risk that they exaggerate how much difference an incoming Conservative Government could make in its first years, or adopt a more measured tone, writing off Labour but managing the expectations that can be placed on a Cameron administration.

Linking both these points Conservative strategists must feel ambivalent about economic recovery. On the one hand, if it starts to come through in the next twelve months, it could lift Labour (don’t forget the Tories need something approaching an electoral landslide to win an overall majority of seats). On the other hand, the best case scenario for the Conservatives is to take control just as things are picking up, enabling them to blame Labour for the recession while the new Government takes credit for the recovery – something which, arguably, Labour achieved post 1997.

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