Objective – Retain AAA. Impediment – Soft underbellyIn digesting the chewy bits of UK Chancellor George Osborne’s budget of 22nd June 010, it seems clear that the principal objective whether stated or not is the retention of the sovereign AAA credit rating. The big question though is this, does the nation have a collective square jaw comparative to that of the privilegely-educated triumvirate of Cameron, Clegg and Osborne? If not, and if the soft underbelly of consumer man has grown too big to be starved, then will history repeat?
Andrew Marr’s book The Making of Modern Britain has much to say about the “Goat” as Lloyd George was unaffectionately known. When he was Chancellor (before his elevation to PM) he cut real government consumption by 11%. It is generally held that this presaged the demise of the Liberal Party and started a sequence of events culminating in the General Strike of 1926. The relevance of this is that according to Martin Weale of the National Institute for Economic and Social Research, Osborne’s proposed cut in the broadest measure of state activity is 10% by the year 2015. Could social unrest on a national scale happen again? Unlike the 1920’s, today’s generation are used to spending now and paying later. On the other hand they are better educated – more aware of the debt pile. But still …..
Markets have reacted well to the Budget. The yield on 10-year government bonds has fallen not least since the national debt should drop to about 69% of GDP from an otherwise 74.4%. Of course the cuts to the public sector and the rise in VAT to 20% in early January 011 could have been less to achieve the same end if certain taxes had not been reduced (such as the effect of a rise of £1k in the personal income tax allowance). Those, by the way, were the coalition’s Liberal Party contributions. Sounds familiar?
JGS-24 June 2010
