Friday, 25 June 2010

At Last! A Budget that isn't a Bodge-It

With the Emergency Budget now a couple of days behind us it is interesting to observe the general reception given to it. I think many are genuinely surprised with how well George Osborne presented the backdrop to his budget and how he has balanced a number of conflicting demands.

There has been much spinning, both for and against the general tone and indeed some of the specifics. The Coalition Government is keen to emphasise the unavoidable nature of the decisions they have set in motion, while Labour is at great pains to stress how many less painful options could have been explored. This is the same labour that left the shame-faced memo to the new Treasury Secretary explaining that there was ‘no money left’, a detail which invalidates any comment they have, be it supporting or conflicting.

What is clear is that things are likely to be slow and dull for some time to come. I have written in this column before about the ‘hangover’ and the need for us to face up to what has for some time been essential. The fact that under the previous administration we endured almost two years of paralysis prior to the election has only made the decisions put forward earlier this week tougher and further reaching. It is also true to say that many Government departments were already facing swingeing cuts initiated before the change of administration, so much of what was said on Tuesday merely formalises action already begun.

The proposed discussion about bringing forward retirement age increases seems to have caused widespread alarm, though I cannot see the surprise in any of this. People are living longer, far longer than ever they did, while there are less rather than more of us gainfully employed paying taxes. It doesn’t need a rocket scientist to deduce that something therefore has to change. We needed either:

• An increase to the retirement age
• A reduction in the State Pension
• Higher Tax and National Insurance

Of the three, an increase to the retirement age would be the only option that doesn’t actually remove any real money, today, from the economy. I therefore see this as the natural and obvious economic choice. This is before we confront the pros and cons of a situation where we might be spending almost as long retired as we have done in work, which would be somewhat perverse I feel.

We also discovered in the Budget that we currently spend more on Housing Benefit than we do on the Police service. Without even uttering the word ‘scrounger’ this has to be wrong. Clearly, this benefit is essential to many people and their future, but it simply cannot be appropriate that it has ballooned to such an enormous level. Attempting to address this clear imbalance is brave and in my opinion commendable.

Above all, what we saw this week was a clear statement that UK plc is aware of its ‘issues’ and is prepared to address them head-on. I have no doubt that this will be a painful and drawn out exercise, but the fact that the price of Government Debt fell in response to the announcements signals that the markets think we are ‘good for it’ in a way they were unsure of before.

I am prepared to acknowledge where I was wrong. I felt that a coalition was not what we needed for prompt and decisive action on the burning issues and the truth has been far from that. In no more than a few weeks we have seen the Coalition emerge with a convincing attempt to right some of the wrongs we have allowed. I am impressed and relieved by this, and only hope that they have the courage to see their ideas through to some form of conclusion, while having the sense to continue to present their case so openly and cohernetly.

Wednesday, 16 June 2010

Cuts - The Argument Begins

We saw today that Dave Prentis, who heads up the Unison Trade Union has said that his 1.3 million members should do their best to resist the imminent cuts that they anticipate as part of the deficit reduction plan. He said that if plans affected "pay, services or pensions" then the Government "wouldn't know what had hit them".

Well, thanks Dave, but I wonder what is your solution to the problem? Perhaps we should borrow some more money so that the make believe world we have inhabited thus far can last a little longer? I think not. Reality has to bite and to bite now, before it is too late. We would all like jobs for life and a guaranteed annual pay rise, alongside shorter working hours and better benefits. A Final Salary pension scheme would be nice too if you're offering Mr. P! The truth though is that there is no money to pay for these dreams and until there is, we must cut our cloth accordingly.

This I fear is the first of what will no doubt be an agonising but ultimately futile string of 'industrial actions' (always something of an oxymoron I thought) that will rumble round like the thunderstorm that doesn't go away. Our Government has a very hard road ahead of it, and one that by definition we have to follow with it. That same Government will be supremely unpopular by the time we have got only part of the way down that road, but they will have to stick to their guns if we are not to witness our very own Greek Tragedy here in Blighty.

Apart from resisting every attempt to rebalance our economy, union leaders seem to have nothing else to bring to the table. I would suggest that as we embark on the second decade of the twenty-first century, if they cannot be more constructive, then they will soon be as redundant as so many others who have contributed so much more.

Now is most definitely a time for pulling together, so step up to the plate please Dave, and others like you. What we need now is positive engagement. If we can't manage that then we collectively "won't know what has hit us".

Thursday, 3 June 2010

Who'd be a Euro-Millionaire?

It would appear that I may have jumped to conclusions in my last post that related to the Hung Parliament. The new administration seems to me making a good fist of things so far, reminding us at all available opportunity that the deficit reduction is central to their objectives.

And so it should be. The note from the Departing Chief Treasury Secretary to his replacement in which he stated that the money had run out was widely seen as a joke. I am afraid I must have had a sense-of-humour-bypass operation, because I see it as many things, but most definitely not funny. In a sense though the note says more than a thousand press releases by the new incumbents ever could, as it removes any legitimacy from any economic argument that our new opposition might dare to make, showing as it does their signal failure and their conscious squandering of our reserves. It was reassuring too to hear the Bank of England Governor’s supporting comments with regard to attacking the deficit now as opposed to waiting in the forlorn hope of there ever being a better or less painful time.

On the whole I am very impressed with the way that things have gone in the month or so since the General Election. It was a shame to see David Laws depart from the Treasury team, not only for the personal trials that the whole affair must have brought him but also as he appeared to have a lot to offer his department and the country as a whole. Let’s hope that the coalition manages to bring back its stronger players from the dead in the same way that we saw the continual resurrection of Peter Mandelson!

The fragility of the Euro following Greece’s near bankruptcy and the ensuing speculation over the other ‘PIIGS’ is difficult to fathom. Many commentators are predicting the eventual failure of the single currency altogether as a result of the tensions this episode and others like it create. It seems hard to believe that the Euro would be allowed to fail, given the amount of political capital that has been invested into it over the years, particularly the primary players in France and Germany. However, there seems to be growing weariness within Germany that they have bank-rolled the profligate South for too long and if German leaders are faced with quietly putting the Euro out of its misery or losing power in their own country the choice will not be a difficult one.

The alternative is that the Euro continues to soldier on, but that Germany installs ‘Economic Advisers’ in each of the member states as a way of ‘Federalising’ the economic policy Euro-wide so as to be a clone of what is done back home. This would of course work in pure economic terms, but would cause untold pain and anguish as the ‘German Way’ proved far too hard a road for the states who have always taken a more relaxed approach to their finances. As we know, it is that relaxed approach that has got them, and now the single currency, into such hot water, but that doesn’t mean they will see it that way.

Whatever, we have interesting times ahead, both here in the UK and on the wider stage too. I like to think that the current negativity might be coming to an end. However, even if it does, it will only be a temporary relief, as the only thing predictable about the future remains its unpredictability.

Now where did I leave those old Peseta notes and coin I wonder?