The UK doesn’t need a Budget statement this week. Chancellor George Osborne should cancel his annual set-piece. Britain has barely begun on the path of fiscal consolidation, and there’s an awful long way to go. With political strife brewing, and intra-coalition tensions rising, the danger that Osborne and his team do damage on Wednesday is probably greater than their chances of doing some good.
The pre-budget chatter is that the UK’s public finance are “better than expected”. This has led to suggestions there is “room for a measured giveaway”, if the Chancellor can summon the “political will”. Such analysis might be described as “wishful thinking”. More accurately, it should be labeled “irresponsible nonsense”. That such a notion has even been entertained by our political classes, and gained any kind of currency at all, speaks volumes of the UK’s low level of economic literacy and the lurid nature of what passes for “debate”.
The UK government claims Britain is a safe haven”. On the surface, that looks true. Ten-year sovereign yields dipped below 2pc during the last week of 2011. As Chancellor George Osborne often points out, UK state borrowing costs are now similar to those of Germany. In fact, they are at their lowest since the late 19th century. For the Tory high command, benign market interest rates are the ultimate justification for their “austerity” programme. The coalition has apparently convinced global investors its commitment to fiscal probity is deadly serious.
Labour’s economics team and their media cheerleaders conversely claim, ad nauseum, that the government has cut public spending “too far and too fast”. The Tories retort that Labour’s old-fashioned Keynesian alternative – to borrow and spend much more – would be disastrous. If Shadow Chancellor Ed Balls got his way, and the government let public spending rip, the UK would instantly lose its triple-AAA credit-rating and the country would have trouble rolling over its huge debts. A creditors’ strike would ensue, resulting in unpaid state wages, a plunging currency, spiking inflation and serious social unrest. On that score, the government is correct.