Hill+Knowlton Strategies

This was painful – but it will take us days to work out just how painful. And whatever the degree of pain we glean from the fine detail of the Pre-Budget Report, we will be feeling it for years.
The Chancellor, Alistair Darling, solemnly laid out to a sombre House of Commons his plans to halve the public deficit in four years. He told us of some tax rises. He told us what spending he will protect. But what he didn’t do was explain where the major cuts will come.

As expected he rejected the idea of a Comprehensive Spending Review, although one is really due. Economic conditions are still too volatile for one to be meaningful he argues.

But Shadow Chancellor George Osborne was not slow to make the point that both in 2001 and 2005 the government held such reviews just before general elections.

The details of what will be cut and how far will be decided after the election expected next May.

But the dividing lines are there. Labour’s case next May will be that now is not the right time to start balancing the books – the country needs to wait until the recovery’s foundation firms up before we face the music.

The Tories will openly say there is a need to start the process now, or the markets we borrow money from to plug the fiscal gap will get the jitters, interest rates will rise and the recovery will be snuffed out that way.

The battle lines have been drawn. There is now an ideological chasm between the parties.

But either way the choices for the public aren’t pleasant. Would you like your wounds cleaned with a cloth or a Brillo pad? With TCP or Dettol? And which will really be more effective?

Alistair Darling tried to perform the remarkable task of getting a couple of election-winning headlines amongst the gloom. Pensioners – who tend to vote – will get a 2.5% rise in the state pension, above inflation.

Spending on teachers, nurses and police officers will continue to rise – but no such guarantee was given for overall spending on education, health and law and order.

And we know we will pay for it later with a rise in National Insurance in 2011. Public sector workers’ pay will be effectively frozen.

On the Chancellor’s plan the real pain will start to kick-in in eighteen months to two years time. Not so much ‘jam tomorrow’ as a case of ‘in a jam tomorrow’, perhaps.

Recently, the former Tory Chief Secretary to the Treasury, Michael Portillo, said that in reality it was hard for a government to make real cuts in public spending. He suggested that from his experience governments had to raise taxes.

Once both parties tried to own optimism. David Cameron talked of the ‘happiness’ factor.

Over the next six months up to the election the parties will paint their picture of the future in far darker colours than they used to. It will be an argument about which party will lead the country into the deeper apocalypse.

The Government’s case will clearly be that we had to borrow to stop the recession caused by the banking crisis turning into a depression. The Tories will claim that there was a structural deficit in the public finances which meant we were ill-prepared for the crisis.

The Government’s attempted dividing line of ‘Labour investment versus Tory cuts’ has now been well and truly abandoned which will be seen by some as a victory for the Chancellor over his next door neighbour.

Expect Labour to try to return to the idea of prudence – prudent cuts to balance the books while they will claim the Tories will cut with ideological relish.

The Tories will paint Labour as traditionally incompetent with the public finances.

The only thing they will both agree on is that the next few years are going to be painful – very painful.

Published by Jason Frayne on behalf of the H&K Public Affairs team.

To read the full PBR please click here