We are still two years away from a general election but the Chancellor’s forthcoming budget might as well be his last, for George Osborne is drinking in the Last Chance Saloon.
If he does not get it right this time then the game is up, he will be a dead man walking to the electoral undertakers and David Cameron will be joining him on the same journey.
For the Government it is that serious, the economy has not behaved in the way that was planned, but Osborne never left enough room to manoeuvre and accordingly the excuses are now beginning to run out.
The eurozone – a major export market for Britain – was never expected to suffer such a bad recession with the consequence of falling orders. Nevertheless, to compensate, the cheap pound should have helped British goods and services be more attractive in the rest of the world, but our exports there have been disappointing, too.
Meanwhile, at home in the domestic market, small businesses queue up to tell how they can’t get loans from banks and first-time buyers struggle to get mortgages – leading to bankers getting the blame.
We have also have had the printing of money by the Bank of England, pumping some £750 billion into the economy without it having been deposited or earned but just magicked up out of thin air. The result of this has been to boost inflation – that is especially damaging to those on fixed incomes and savings, such as pensioners – while the Bank’s low interest rate means that savers are receiving less from their accounts than the inflation the Government is creating. These were policies of Gordon Brown that have failed, yet in his desperation to “do something” Osborne has been willing to continue with them.
As I said last week, there is mounting evidence that the public is now exasperated with the coalition and is losing faith in the austere approach, even though the hair-shirt measures are only austere in name. Public spending will continue to rise, the deficit will continue to rise, and so too will the debt.
What then can be done?
Tory backbenchers are queuing up to suggest how various savings can be made that might fund tax cuts to incentivise business growth. Economists and think-tanks are publishing papers replete with ten-point plans to give the Chancellor ideas about what can be done. There is no shortage of sensible suggestions that don’t involve borrowing money and making the deficit and debt problem worse.
The Chancellor should use some of them, for he needs to release the inherent enterprise and dynamism in the country – it’s government obstruction and regulation that holds it back.
Then there’s the half-baked ideas that require more borrowing being advocated by Vince Cable and Ed Balls. I say half-baked, for if you went along to your own bank or credit card company and asked for a loan on top of your existing debts to tide you over for the next five years you would be laughed at. There are always institutions willing to loan money but the cost would be enormous and those paying would be our children and their children for decades to come. So simply saying that building more schools, roads and hospitals with borrowed money is not the easy solution it seems.
What we need is private investment and lower costs, and it is the Government that can make this happen by changing its policies. This does not mean departing from the “Plan A” strategy but adding to it by Osborne and Cameron entering the real world rather than living in their imaginary one.
The real world means ending the subsidies to uneconomic forms of electricity generation such as wind turbines that simply line the pockets of energy companies and landowners, with the poor consumer paying the billions in subsidy.
The real world means removing the constraints on the banks that mean they are using all the capital they can find to strengthen their reserves instead of lending it to businesses and mortgagees because the Government has set the reserve ratios too high.
Each time you dig down you find that the problem with the economy is what the Government is doing because it thinks it is politically correct to beat up banks or pander to climate change nostrums that the rest of the world is ignoring.
Each time you look at the inner conflicts of the coalition, you will find that the reason the Government cannot or will not change its position is because the two parties are at loggerheads, with the Liberal Democrats seeking to frustrate the very policies that would get us out of the hole.
George Osborne has to take the Government by the scruff of the neck. It is now or never – he must deliver a budget that is in the interests of the country and not the minority party of the coalition. If the Lib Dems object, call an election.
Osborne must produce a budget for enterprise and call the bluff of Clegg and Cable, or the coalition will fail anyway. It’s his last drink in the Last Chance Saloon.