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Good News, Bad News

Britain’s three main political
parties appear to be in general agreement on the spending plans announced
yesterday by the Chancellor of the Exchequer. 
This, on the face of it, ought to be good news, a clear case of
politicians finally subordinating narrow party concerns to the greater cause of
the national interest.

Actually, my guess is that it is
very bad news. 

A broad political consensus on
what the government intends to do to reduce the deficit almost certainly means
that what it intends to do isn’t terribly relevant.  In other words, there’s no point in Labour,
or even the Liberal Democrats, getting hot under the collar about a reduction
programme that’s not going to make the slightest difference.  George Osborne always puts great stress on how
he’s making “difficult decisions”, even as he’s avoiding them.  Ed Balls, in Labour’s rebuttal, huffed and
puffed valiantly, but that was for the television cameras.  The crimson-faced rhetoric was empty.   The Lib-Dems go strangely quiet.

This so called ‘war’ against the
deficit has become a phoney war. 
Scarcely a shot is being fired. 
The Conservatives can’t risk being seen as uncaring.  Labour doesn’t want to be labelled
irresponsible, and anyway seems clueless. The Lib Dems, hoping desperately to
be part of a post-election coalition – the sole remaining source of their
credibility – are pushing all the stops in, rather than pulling them out.  There wasn’t a peep out of them yesterday –
not even from Vince Cable. 

At no point has anyone from any
of the parties proposed that spending cuts be extended to the sacred cows of
Defence, Education, Welfare and the National Health Service.  The reason is that it’s in the treatment of
bloated metaphorical animals, wandering about at will, like the real ones on
the streets of India,
where the most votes will be won or lost. 
Best to leave them alone, seems to be the consensus.   

Nobody is arguing that cuts are inessential.  The trouble is that Osborne’s don’t go nearly
far enough to matter. All the while the aforementioned mega-departments of
government, the ones that soak up most of the money, are ‘ring-fenced’, the deficit-reduction
exercise is no more than that – an exercise, not with real guns. And everyone
knows it.  

Meanwhile, the Treasury, far from
taking an axe to the deficit merely continues to whittle away at it with a
pen-knife.  If the debt hasn’t been
reduced by all the supposedly Draconian austerity measures implemented so far,
it’s unlikely to respond to the ones outlined yesterday.  As one newspaper columnist observed today,
the proposed reductions of £11.5 billion to a budget of £645 billion represent a
mere 1.5 per cent.  That, he points out, amounts
to no more than a statistical rounding error.

Even a rounding error, some might
say, is a step on the road to a balanced budget.  But it’s a tiny step, and the road to be
travelled is very long and is sure to be very bumpy.  It could get longer and bumpier still if the
financial markets should suddenly deliver bad news.

In fact, ominous news arrived
last week in the form of a rise in bond market interest rates.  How far up they’ll go is beyond my ken, but even
a small increase would be unhelpful, a big one disastrous.  Even a mathematical idiot like me can work
out the difference in the cost of borrowing if the government’s interest obligations
rise from, say, two per cent to five per cent. 
That 1.5 per cent could be wiped out in a few days of hectic trading.

The crucial point is that our
politicians, far from forming an historic alliance in the public interest, are simply
manoeuvring to position themselves favourably for the general election, just
two years away.  It was ever thus.  The political mantra now shared by the
parties goes something like this: it’s not the economy, stupid, it’s the votes.
 

To be fair to this Chancellor, he
may be doing a little more than his predecessors, but like them, is constrained
by his party, whose managers recognise full well that the electoral cost of tackling
the deficit head on is political suicide. 
This is a battle to be fought not on the playing fields of Westminster but in the marginal constituencies of England.  Every canny Member of Parliament happily
whispers at dinner parties what needs to be done, but declines to say it out
loud in public.  So what we’re left with
is a government chipping away at the problem, claiming to be brave, and desperately
hoping for something helpful to show up. 
Mr. Micawber would approve.

I can’t imagine what it is that’s
likely to show up  If the British economy
recovered with enough vigour, higher tax receipts could get the government off
the hook, at least for a while.  And by
all accounts the economy is
recovering, but ever so slowly.  The
truth is that Britain
no more has control over its economic destiny than most other western countries.  Most of its main export markets are in
difficulties: Europe is in a deep hole, and
even the Asian economies are slowing down. 
The American economy may recover faster than any, but it won’t be
enough, or soon enough. 

Anyway, the biggest short-term
threat comes not from shrinking levels of trade but from rising levels of interest.
So, for the next few weeks, between Wimbledon
and the Ashes, I’ll be watching those bond markets rather more closely than
usual.      

So, I’m certain, will Mr.
Osborne.

 

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