In normal times, the Budget would be taking place in under a fortnight. The second week in March has become the Treasury’s favoured date over the years, to the annoyance of MPs who would prefer to be at the Cheltenham Festival.
But these are not normal times — and the chancellor will not now deliver his statement until April 22, the latest spring Budget since 1945.
It is hard to believe that just 12 months ago, Alistair Darling said: ‘Because of the changes made by this government to entrench stability and increase the flexibility and resilience of our economy, I am able to report that the British economy will continue to grow through this year and beyond.’
It sounded fanciful then; now it looks grotesque. Certainly, the economic crisis unfolded far faster than any policy maker anticipated, but has a Budget ever looked so outdated or irrelevant, so quickly?
The suspicion is that Darling has put off this year’s Budget because he simply has no idea what to say. The government hopes that the G20 summit in London on April 2 will provide a financial structure within which the Budget can be framed, but don’t count on it.
Rarely in modern politics have governments appeared so powerless in the face of events. Even wars are reasonably straightforward: there is an enemy to be defeated and a strategy can be devised for doing so. When it is not clear what is wrong, it is exceptionally difficult to know how to fix it. Prime Minister Gordon Brown insists that he has a plan and is not floundering. Yet his efforts to restore confidence in the financial sector appear increasingly desperate.
If the banks do not start lending again to each other and to businesses, more small firms will go bust, thousands of employees will lose their jobs, tax revenues will fall and welfare bills will rise.
Among the slew of new proposals announced these past few days, the most important is the removal of toxic assets from the banks under the Treasury’s asset protection scheme, underwritten by up to £500bn of taxpayers’ money. Only when the banks, which do not trust each other, feel they are all being open about bad debt levels can lending begin again.
This feels like the last throw of the dice — and what if it doesn’t work? Across Europe, there are signs of growing civil unrest as the implications of the recession hit home. Greek farmers have blocked roads over falling prices, workers in France have joined mass demonstrations and protestors have clashed with police in normally placid Iceland.
Closer to home, the Irish have taken to the streets in the largest demonstration seen in Dublin in recent years. These were mainly public sector workers who are being required to pay a pension levy and also face job cuts. This is the shape of things to come in Britain.
According to a report in the Guardian, the police are preparing for a ‘summer of rage’ as victims of the economic downturn take to the streets. Since most of these victims are middle class, well educated and unorganised, this does not seem very likely — unless, of course, the recession moves into the public sector in a way that it has not done so far.
One of the most remarkable features of the early stages of the recession was the apparent immunity of the public sector, which continued to recruit and expand almost as quickly as the private sector shed jobs and contracted. But that is changing. The police are cutting back on numbers and the proposed sale of the Royal Mail has been precipitated by the apparent imminent collapse of its pension scheme.
If the party is over in the financial world, the music is about to be switched off in Whitehall and elsewhere, too. The government has already signalled that it is looking at whether the country can afford to continue with the unfunded final salary pension in parts of the public sector. Brown recently ordered a review of MPs’ pensions, with his preferred option being the abolition of the final salary scheme.
While, on the face of it, this affected just 600-odd MPs, it is a necessary precursor to a wider reform of the public sector pension regime that will be unavoidable as the levels of national indebtedness ratchet up over the next five or ten years. Yet the minute there is any suggestion that pension arrangements are to worsen, the public sector unions will take action. In 2005, such a threat forced the government to repeal its own legislation to reform local government pensions, just a few months after it was brought into law.
This will be the big battle after the next election. Judging by the polls, it is a fight that will be had between a Conservative government trying to bring spending under control and the public sector unions.
All the Tory pre-credit crunch talk about matching Labour’s spending plans has been abandoned. The next government will face the simple expedient of returning the public finances to some semblance of sanity over the medium term. It will mean tax rises and deep spending cuts. It is going to be bloody.
Philip Johnston is assistant editor of the Daily Telegraph
