Economics Update from John Birchall - Mr Darling's Difficult Budget
This may be Mr Darlings last ever Budget and it is probably going to be the most difficult he has delivered.
He will need to steady nerves within his own party and give them something to say on the door steps of the UK as they canvas for votes in the soon to be announced General Election.
He will need to steady nerves within the financial markets as the size of our national debt is causing some to wonder if the ‘Greek problem’ has taken attention away from our debt as a percentage of national income.
He will need to give the public an idea of how he intends to cut the deficit without hurting ‘front line’ services
In fairness if he does all of these then he will have created a miracle and whatever one’s opinion of Mr Darling he is not a magician.
If the recent good news of public debt is accurate and the figures are provisional then 2014 outwards should see a fall in its predicted size. This won’t bring much comfort to voter but they might just say ‘stick with what you know’ and don’t take a risk with the others who might cut spending just when the patient is feeling better.
Again if the forecasts are accurate then the fragility of the economy, with say 2.1% growth in 2011 again plays into the hands of those who say don’t cut yet, else you may kill the patient.
Now, he may be tempted to play a more obvious political card and spend a little more on youth unemployment, which remains stubbornly high. This would play well with traditional Labour supporters, especially in the heartland areas, not all of which are safe seats.
Looking longer into the post election future we may have ‘ an investment bank’ to rival some of those that behaved rather badly in the lead in to the crisis and a ‘people’s bank’, whatever they may be and Ed Milliband, the one Mr Brown does trust announced this in a Guardian interview last week.
This would be difficult for the Opposition to oppose this and once again its sound economics with a clever political twist.
I think banks may suffer but politically the Tories have stolen that one, however, the Chancellor might be able to say that taxing too highly would be another ‘Tory’ own goal as both capital and highly trained people are very mobile in the global world.
So, I’ve said what I think will happen –
what do you think?
John