Malcolm Blair Robinson
October 21, 2010 By Malcolm Blair-Robinson

George Osborne, the Cuts and the Economy

The debate now begins. Just right or too much or too soon? Fair or unfair? Do the poor suffer most? 

George Osborne has become a decisive and focussed parliamentary performer. He often appeared inadequate in opposition. This is the case no longer. The government front bench is beginning to look effective. The combination of  the strident Osborne, the dour Alexander and the homely Cable presents a formidable financial team.

To judge the cuts is more difficult, not least because each pundit bases judgement and criticism on different criteria to  make their argument. Some worry about a double dip recession, whilst others feel even that is acceptable, if it achieves an ending of the fiscal deficit and strong public finances. Then there is the argument about the burden on the rich relative to the poor. Here are the criteria which this Blog considers crucial.

Taxation must balance public expenditure, in other words running costs

Borrowing is permissible for investment in infrastructure, science and technology.

Taxation must be high enough, but not so high as to act as a disincentive to work and investment

The economy must be based on less borrowing, whether  private or public or business, and more saving and investment.

The economy must be driven by free enterprise and the private sector with the State playing an enabling and caring role never greater than 40% of GDP.

Those on lower incomes must have access to welfare in the form of healthcare, education, housing support while the cost of housing is disproportionate, and crisis support such as disability and unemployment

The better paid must recognise that their jobs depend on the public utilities and other key jobs connected to civilised living as well as wages in the manufacturing and service sectors being maintained at reasonable levels in the area of averge pay. These earners rely on the welfare state.

Over the last five years taxation rates of basic income tax and vat have been allowed to operate at too low a level to sustain 40% of GDP levels of government spending. 

Universal benefits paid to those who do not need them cannot be sustained in the long term.

Government must get smaller.

The greatest economic threat is not a double dip recession but a debt mountain and and interest bill which is so burdensome that it sucks the entire economy into depression. This remains a critical risk.

To deal with all this will take time. Some parts of the current package of measures impact the poor disproportionately hard and are unfair unless those affected are feckless scroungers. Local authorities will have real problems with services with the reduction in grants. Overall, if judged by all the measures announced by this government across the piece the package is tough but balanced. There is room for higher income tax at the basic rate to pre Labour levels, if the threshold is also raised. That shot remains in the locker. The squeeze on housing benefits will bear down on house values, as exploitation of the benefit system by the private rented sector in urban areas has been one of the drivers of excessive house price inflation for some years. The cut in social housing investment is a mistake which should not have been made.

Generally, however, the coalition government has a determination to sort the mess out and whether you like it or not, it is economically the only show in town. Ed Milliband and Alan Johnson are a much more formidable team than many commentators expected. Ed’s lucid and logical style is refreshing after all that went before in the leadership of New Labour and he is trusted. Alan Johnson strikes a cord with ordinary worried families. What these two now have to do, is come up with a real and credible alternative. So far there is nothing in sight. Just cutting less is no longer even the foundation of a plan. Until they come forward with more than soundbites and clever word play,the Coalition has the wind in its sails, no matter what the pundits say.

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