Just over a year in, and debate still rages about the coalition government’s approach to reducing the UK deficit. Is it, as the Chancellor would have us believe, a necessary strategy in order to maintain the confidence of international monetary markets and the IMF, or, as Ed Balls would contend, is it Tory dogma getting in the way of a more subtle approach that would result in a less harsh impact?
Unemployment figures announced this week were more positive than anticipated, though certain parts of the country, including areas of the North West, have been disproportionately affected by the early public expenditure cuts.
Inflation appears to have peaked, and although still higher than the Bank of England’s Monetary Policy Committee would like, anything between 3-4% is likely to allow interest rates to be kept low. Forecasts on growth vary greatly, though again the Chancellor will be cheered that, even on the opposition benches, few now believe that the economy will go back into recession. The dreaded ‘double-dip’, most predict, has been avoided.
Why then the lack of confidence, and the odd hint from within government circles (though not, it has to be said from the occupant of 11 Downing Street) of a possible change in direction?
Trade Union agitation and planned public sector strikes are never welcomed by any government, but they would hardly force a change of economic policy nowadays, and the polls indicate an acceptance by the majority that, generally, both the Prime Minister and the Chancellor are performing well.
Could it be that the lack of confidence in growth is what is causing some alarm? A lack of money supply, with the banks still clearly failing to deliver on promises they made on the issue of lending to small businesses, is continuing to stymie growth in the private sector, so what can be done to stimulate some activity, and kick start a tangible recovery?
The coalition have proved in a number of areas, most recently on penal reform and health, that they are well capable of a U-turn if they think it is electorally pragmatic. On the economy, though, George Osborne appears robust in his ‘Plan A’ approach.
I think it highly unlikely that Osborne will relent on his public spending cuts. Where he could go though, if he was minded, was into the taxation arena. A clear signal that the 50% rate was to go sooner rather than later would certainly cheer his own backbenchers, and entrepreneurs.
His nemesis the Shadow Chancellor, has also suggested an initiative which would most certainly be greeted with enthusiasm by retailers – a return to 17.5% VAT, at least until those growth figures begin to look healthier. The fact that Ed Balls suggested this probably means unlikely government adoption, but it is certainly worth consideration.
I guess that Osborne will sit tight until the Autumn, but if those growth forecasts don’t start to improve I’m expecting, if not a fully blown ‘Plan B’, at least a ‘Plan A- Plus’.