'Britain has a plan and we’re sticking to it’, George Osborne declared in his Budget statement on March 23.
The plan is pretty straightforward. Clear the structural deficit by the end of this Parliament, while stimulating private sector growth and jobs. Hence the Budget’s adoption of enterprise zones, lower corporation tax and new apprenticeships.
Whether the chancellor will be able to achieve his goal, however, is another matter. Concern is so strong that economists and commentators – including the influential Institute for Fiscal Studies – have been queuing up to ask ‘where’s Plan B?’.
The coalition is pushing through unprecedented spending cuts at a time when the economy is on a knife-edge. Growth is fragile – the Office for Budget Responsibility has had to downgrade its estimates for both 2011 and 2012 – unemployment is at a 17-year high and CPI inflation is more than twice the government’s target.
What if it all goes wrong and we end up with a double-dip recession? Shouldn’t the government consider the option of easing up on the fiscal pain if the economy falters and essential services are threatened?
Osborne refuses to address this issue because it would undermine his credibility with the public, the markets and the Conservative Party faithful.
But he’s taking a big risk – and the destruction of many of our most valued public services could be the result.
Not only do public servants have to deal with a huge funding gap, they are also facing assaults on their professionalism and integrity from the very top of government.
As Lord Adonis and Ian Mulheirn point out in the April issue of Public Finance magazine, the prime minister’s description of civil servants and council staff as ‘enemies of enterprise’ was hurtful, inaccurate and self-defeating.
Of course, there is an alternative to the government’s hardline approach. Liam Byrne, the man overseeing Labour’s policy review, tells PF this month (see cover feature) that the programme of cuts should be slower, less severe and without front-loading.
This too has its risks, though. If the markets and credit ratings agencies take fright, we could end up with our own debt crisis. It’s unlikely to be on the scale of that faced by Portugal, Greece and Ireland, but would still be a disastrous outcome.
There’s clearly a lot riding on the government’s deficit reduction plan. Osborne won’t be going off the script. We just have to hope that there’s a happy ending.
Mike Thatcher is the editor of Public Finance
