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.

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