Nick Clegg on responding to the budget

“The imbalance of the system takes on an almost farcical turn on Budget day. The Budget is possibly the single most important government document produced every year, detailing more than £600bn of public spending. In many countries, the Budget is published hours or days in advance of the debate, to give the opposition time to analyse it. In Britain, the leader of the Opposition gets three seconds to digest it before he's expected to stand up and give a coherent analysis. No wonder most set-piece debates descend into schoolboy jeering.”

Quite.

‘Democracy? What a great idea...’ 20^th May 2008 in the Independent

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.

The Lines are Drawn

Election campaigns typically get quickly dominated by one or two big issues. Often as the campaign wears on which issue dominates changes. So in 2005 there was a week where the news was dominated by immigration debates, a week where the news was dominated by NHS debates and a week where the parties debated Iraq, and so it has been with this election campaign already. We are now reaching the end of week one and much of the campaigning in the national news has been dominated by one policy – whether or not to raise National Insurance contributions.

This may seem like a small issue in some respects - the rise that was in the budget is only 1% - but in many ways it is a symbol. Firstly the Liberal Democrats have basically backed Labour's stance on the issue of a NI rise, meaning the Conservatives can differentiate themselves not only from Labour but also from the Liberal Democrats. In an age where it is often commented how similar our political parties are such differences are vital. Secondly there is an implicit suggestion that Labour is once again the party of 'tax and spend' a party out of kilter with business whose policies are economically dangerous. Reams of business leaders have supported the Conservatives who have sought to paint out the policy as a 'job killer'.

Today Alistair Darling admitted that the attack on Labour's plans is working, yet argued that it was the Conservative policy that would risk jobs. However it appears the tide may begin to turn on the Conservatives as economists have begun to warn that the Conservative's sums may not add up. The Tory strategy is a risky one. Their argument about NI contributions is clear, and an argument that has a nice simple logic to it that one does not have to be an economist to understand (more expensive to hire people? Well then hire less people), but at the end of the day this country currently has a budget deficit equivalent to 11.8% of Gross Domestic Product, one of the highest in the Western world. That is a hole in the country's finances that needs filling, and people are going to ask how the Tories are going to fill it AND cut this tax rise.

The reality is that you can talk about 'efficiency savings' as much as you like but one man's inefficiency is another man's required process, job or otherwise. In the end the attack may come back to bite the Conservatives on the posterior. Nonetheless it is clear that so far the Conservative attack has worked much to Labour's chagrin. It has also had the effect of squeezing the Liberal Democrats out of the debate during the first week as their position on this issue is so similar to Labour's as to make it uninteresting to the media. As such we can put the first week of the four week campaign down as a Conservative win. Nonetheless there are still three weeks left and this attack will run out of steam in the next couple of days. Either Labour will succeed in reversing the attack, or the Conservatives will find a new avenue of attack. Roll on Week 2.

A Very Electioneering Budget

Today was the budget, and with the election likely to be called very soon all eyes were on Alastair Darling. This close to the election the budget was inevitably an electioneering one; at some points (especially early on) it felt more like a speech than a budget with political points being scored everywhere. There was talk of 'too many cuts wrecking the recovery' (a phrase we are likely to hear from Labour repeatedly over the next few weeks), and even the declaration of a deal with Belize, home of famed Tory tax evader Lord Ashcroft, for more transparency in their budget!

The budget speech itself can basically be divided into two basic messages. Firstly, it was a case for the defence, with Darling clearly happy to announce that the budget deficit was smaller than predicted (I believe it comes to 11.8% rather than 13% of GDP), the one-time tax on bankers bonuses this Christmas raised two billion pounds we are told, more than predicted. What this means is that Labour can happily paint out a picture of a successful recovery just as we approach the election, much to their benefit. If Labour can successfully argue that their policies have resulted in an economic recovery then the benefits for them are obvious. Of course the opposition parties lambasted the figures, claiming smoke and mirrors.

In many ways it was a boring budget. There were few big announcements, or new ideas, but it was in keeping with Labour's 'steady as she goes' strategy. Any kind of big announcement would have belied Labour's central message, 'We've made the right choices, anything too radical would be a disaster.' Of course you cannot preach moderation and then engage in any big moves. Such a strategy basically depends on fear, which is a very successful electoral weapon. Labour won in 1997 by saying that they would keep the Tories spending plans. Cameron started out his time as leader of the opposition saying he would match Labour spending plans. By talking about cuts Cameron has exposed himself to an easy attack. It is often said that opposition parties do not win elections in Britain, governments lose them. The calm moderate approach of Darling may prove to be right or wrong, but if the public is convinced that the economy is improving, and that Tory policies may put that improvement at risk then Labour is in good stead for the election campaign. Polls show that the figures of Osborne and Cameron do not inspire economic confidence.

The figures from Ipsos-MORI's March political monitor will make for depressing reading for the Conservatives for instance. Economic optimism is up, and between Cable, Darling and Osborne the latter ranks as the least capable Chancellor in the public's eyes.

The second part of the budget was a series of relatively minor bits of change to tax and spend. More support for small business, a higher threshold on stamp duty to make it cheaper to buy a house, a cut in business rates and a 'green investment bank' were the headlines here. All were self-evidently aimed at helping economic growth. Yet while Labour gave, it also took away, but there was a certain shade of Old Labour about the situation as a clampdown on tax avoidance (predicted to raise £500 million) and a freeze in inheritance tax thresholds clearly targets the rich, as does the previously mentioned deal with Belize (deals have also been signed with the tax havens of Dominica and Grenada). Darling also backed a tax on bank transactions, but only if it was adopted globally. Such populist measures have a large electoral constituency right now, with the rage against bankers and general anti-elitist feeling of the time being practically palpable.

Whoever wins the election this budget will be temporary. The Tories back an 'emergency budget' within 50 days of coming into office, whereas Labour promises a spending review in autumn. The temporary nature of the budget is essential as, being an electioneering budget, there are surely things that Darling hasn't done purely for fear of frightening the electorate. All in all, this budget sets up Labour's stall for the election, and to many I expect it will look a very attractive stall indeed.