Tuesday, 22 June 2010

The Emergency Budget: Or how to govern, and how to be the opposition

I am not an economist, I am a political scientist, so I will leave discussion of the effects of the budget to those more knowledgeable than I. Instead I'd like to turn my attention to the political manoeuvring around the budget itself.

In an ideal world any government desires to do only those things which will be popular, unfortunately in the real world government's often times feel like they must do things which won't be. The governing coalition clearly takes the view that the deficit needs dealing with, and fast. Typically people elect that party which they feel will best handle the economy and with the economy in the doldrums, and with the potential, in the wake of the European Sovereign Debt crisis, that it may get worse, it is imperative that the Conservatives and Lib Dems get the economy back on track for their own political survival. From the Conservative point of view the only way to do that is to clamp down on the budget deficit, which at 10.5% of GDP is higher than almost any other first world nation. That means political decisions that will inevitably be unpopular, as the raising of taxes and cutting of spending always is.

Much of political governance is about political capital. A rather nebulous concept the best way of describing political capital is the degree to which the population will accept you doing unpopular things, which is then related to your own popularity. If the economy is doing well, and the citizenship's quality of life is too, generally the citizenship is more likely to assume you know what you're doing and give you the benefit of the doubt. This applies to both democracies and dictatorships, so if we take China for instance, during the 1980s life was bad, many were moving into poverty and so a vast democracy movement sprang up, with Tiananmen Square the most notable expression of it. Now there is almost no democracy movement. China has not become much more democratic or free in the intervening years, but the quality of life of the average Chinese citizen has improved exponentially with massive economic growth. Much of governance, in both democracies and dictatorships (and everything in-between) is about political capital.

New governments, such as the one we now have, have high political capital for several reasons. Firstly for a reasonable period of time people are willing to accept that decisions being taken by the government are as a result of mistakes by the previous government. Secondly people are willing to give new governments the benefit of the doubt, time to prove themselves. Even amongst those who vote for the opposition there is usually a case of people thinking 'Well they're in power now, let's wait and see'. Thirdly their own supporters are usually imbued with a sense of 'we got them out!' rather than the feeling of broken promises that can accompany the mid-term.

Therefore it is usually best to get as much as is unpopular out of the way as quickly as possible. Which brings us to this budget, with the government in power for less than 2 months the coalition has presented a budget that is truly miserable reading. While there are some notes that will be regarded as good ideas fairly universally, the restoration of the earnings link with pensions, the raised personal allowance for income tax, and a banking levy and so on most of it will be unpopular. Child benefit and housing benefit cuts, cuts to universities, and THAT VAT increase to 20%. We have somewhat been softened up for this. Much of the time since the government came to power has been spent highlighting 'crazy' spending promises made by the previous government. Yet, in a sense, this budget is not just a budget for the next year, but for the next five. The eventual aim according to Osbourne is to erase the structural deficit by 2015. Basically they've lined up all the cuts in this budget so that later budgets can concentrate on dolling out the spending, on more personal allowance threshold rises, on corporation tax cuts, and probably, eventually, on reducing VAT back down again.

After the budget had been delivered up stood Harriet Harman; Osborne had made her job extremely easy after all. Labour are extremely well-placed as an opposition party, for they will be the sole credible choice to get the coalition out of power at the next election. Laying into obviously unpopular decisions is an easy game to play. Yet they must be careful, the fact that Cameron did not attain a majority is testament to what can happen when a party simply attacks the government and does not provide constructive opposition. The facts are that:

  • Labour never ruled out a VAT rise either
  • Labour had promised £44 billion worth of cuts already with Alistair Darling promising that if they won a fourth term they'd 'cut more than Thatcher'

Even Labour knows that cuts and tax rises are necessary; it cannot credibly argue that this is not the case from opposition. If the Tories are clever they will deploy this to delegitimise Labour attacks. Labour should be careful about being too boisterous in its opposition to coalition cuts. Labour must be careful to set out alternative cuts and ways of raising revenue.


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