Things are looking up for Gordon
Suddenly this week looks like ending a lot better for Gordon Brown than it started. An authoritative think-tank says the recession has ended, the Tory flank is exposed to Labour attacks on spending cuts and the threat to his leadership is over. What's not to smile about if you're the PM, after many, many grim weeks?
Of course, each reason to smile is not as clear cut as it seems -- for example his leadership will no doubt soon come back into play -- but Mr Brown is bound to feel chipper than he has since at least . He should enjoy the current mood -- it probably won't last.
Mr Brown believes that the combined effect of a huge fiscal stimulus and a massive boost to the money supply has stopped the recession from being far worse than it might have been -- and now the is even saying that the recession has actually ended.
Government ministers are right to be cautious. The economy might have stopped sinking in recent months but that is probably because companies have started rebuilding their stocks (inventories) after running them down to zero and because the sliding pound has made our exports more competitive. But the and unless consumer spending picks up -- not clear in the short term -- companies will soon stop their re-stocking. So any recovery in 2009 could be short-lived at worst, anaemic at best -- an economists' recovery in the sense that only economists can see it while everybody else still worries about rising unemployment, closing companies and home repossessions.
Nevertheless, the government is accumulating ammunition to be able to claim that its response to the financial meltdown is working and could even confound the more dismal forecasters in the City. Whether it gets political credit for it is another matter. The British economy was recovering quite nicely when John Major went to the country in 1997 but the voters had already decided they had more than enough of him and his party. That's the danger for Mr Brown in a year's time, even if the green shoots are all around us.
Mr Brown was in his element because he had Tory spending cutters in his sights: nothing pleases the PM more than to contrast his big spending with Tory spending cuts. But it didn't wash on yesterday's and it hasn't washed in , on the left or the right. Almost everybody accepts that there will be cuts after the next election, whoever wins.
Let me explain in more detail than I was able to on yesterday's show what is at stake here. The most recent Budget Red Book forecasts that total public spending in real terms (the figures the PM read out yesterday did not allow for inflation) will fall 0.1% a year for the three years starting April 2011.
That doesn't seem like much but when you take into account the rising interest bill to service the massive debt the government is accumulating plus spending on which the government has no choice (such as pensions, dole, welfare) then it means quite severe cuts in departmental budgets -- which calculates at 2.3% a year, making a total of 7% cuts in the three years starting April 2011.
So under Labour's present plans, as published in its own Red Book, departmental spending would fall by 7% over three years. Not quite the continuing rise in spending Mr Brown would have us believe. But the Tories are spending with continued real increases. Do that and, as admitted yesterday, all the other departments will face an accumulated 10% cut.
So I suppose you could say the choice is between Labour cuts of 7% and Tory cuts of 10% (but with health protected). Except that Labour is also now saying it would ring-fence health -- at least that's what new seemed to be saying on Channel 4 News last night, though it wasn't completely clear. I understand this morning that the Health Department is indicating that, under Labour, health would enjoy real spending increases for the foreseeable future. If that's the case then, under Labour's existing plans, the other departments would also face a 10% cut, similar to what the Tories envisage.
In other words, for all the froth and steam, both parties are really saying much the same thing!
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