Fishburn Hedges

22.06.2010

Tough but fair, goes the mantra and George Osborne made it clear at the outset that today’s ‘emergency’ Budget was ‘unavoidable’. Not surprisingly, we heard a lot about the scale of the economic challenge facing the Government which borrows one pound in every four that it spends.   We were assured that the coalition would bring the structural deficit into balance by 2014, through “early, determined action” – if we could all share the pain.

And there was plenty of pain, with Osborne hoping that the electorate will agree with his argument that by paying for the past, he can plan for the future, and that ultimately everyone will share in the rewards. The public had been briefed to expect austerity measures, and the Budget did not disappoint. 

A Coalition Budget

The economic reasons for cutting deep and early have been explicitly made by the coalition partners, focussing on the huge deficit they inherited and the crisis in Eurozone that has put added pressure on the UK economy.  Yet, the unspoken political reasons (or at least unspoken by the coalition partners) are also very clear.

Firstly, the earlier the measures are introduced, the easier it is to blame Labour; secondly, by frontloading the economic pain, the coalition is hoping that they can take the political hit early in the electoral cycle and be able to offer rewards in time for the next general election; and thirdly by showing clear input from both the Conservative and Liberal Democrat parties into the Budget decisions, Cameron and Clegg can strengthen the coalition ahead of the choppier waters that the government is now entering.

For now, though, the coalition needs to prove it has credibility and staying power, and each Party’s leadership has thought long and hard about positioning. Clegg’s impassioned email to Lib Dem rank and file is testament to the nervousness felt in Cowley Street.

Spreading the economic pain

No Chancellor is going to tell Government Departments they face hefty cuts, the middle classes that their benefits are to be raided and public sector workers that there’ll be no pay rises for at least two years, and feel relaxed about it. Even the Queen has to tighten her belt.

But Osborne is well-known for his political judgement, and argued clearly and with conviction that while this Budget is unavoidable and painful, at its heart it is progressive.

While the higher rate of Capital Gains Tax went up to 28% (sharp, but less than some had predicted), the Budget took 880,000 low paid workers out of income tax. Bankers will face the widely predicted levy, but the electorate will likely see a council tax freeze. A VAT rise to 20% is a bitter spoonful of medicine, but Osborne will be praying there were  just enough granules of sugar to make it palatable.

The Lib Dems will have welcomed the emphasis on the “progressive alliance”. They’ll take particular satisfaction in the fact that the Tories 80%/20% rule of thumb on spending cuts versus tax rises has been adjusted to 77%/23%. Clegg, Alexander and co are determined not to be characterised as “useful idiots”, despite Labour’s claims, and for now they have made their influence felt.

Labour's response

Osborne’s canny positioning causes more problems for Labour, who probably expected to land some strong punches. Given they were not as brutally wounded at the election as many expected, Labour has good reason to think that the electorate is still willing at least to listen to their arguments. For them, the Tories are ideologically driven to hurt the public sector, using the Lib Dems as their shield.

With Harman’s response highlighting rising unemployment and lower growth, and with respected voices like Darling and the Milibands insisting that the coalition has got the judgements wrong, both coalition parties are vulnerable – so Osborne was explicit in positioning himself on the side of the least well-off.

All in all, this was an impressive performance from Osborne, who took a straight-talking approach and had his Liberal Democrat partners positioned strategically at his side looking as comfortable as could be hoped.

If the honeymoon is over, the marriage is still solid. Of course, when the impact of tough decisions kicks in, including the swingeing departmental cuts through the Comprehensive Spending Review, the domestics may well begin…

Read the details of the Budget here.