The G20 ‘save the world’ summit took some truly historic decisions. The budget is Labour’s first major opportunity to follow through on that deal.
Practical measures were agreed aimed at reversing the downturn in the global economy by boosting world trade. Principles for reform of the global financial system were adopted promising an end to light touch regulation. The budget must show how the government intends to implement its part of the bargain, notably on tackling tax havens and tightening the regulation of financial institutions.
The extra funds for the IMF and the help for emerging markets and developing countries exceeded expectations. However, G20 did not put an end to the global financial crisis. The threat of a general slump remains real, even if G20 lessened the likelihood. The prospect is still of a prolonged recession. Which is why the $1.1 trillion programme of extra support for the world economy is so significant.
David Cameron’s response to the G20 agreement was to call for the focus to switch back to the UK domestic economy and for priority to go to cutting the UK national debt. So much for his call for a ‘capitalism with a conscience’. The Tories seem unable to accept that financial markets are not self correcting, that the risk of catastrophic economic collapse is inherent in an inadequately regulated system, and that only government intervention can promote recovery when the financial system has failed.
The euphoric reception that greeted the G20 summit must be balanced against the reality that the UK economy today is not where the Treasury expected it to be in November. It looks likely to shrink this year more than twice as fast as the Treasury predicted.
Alistair Darling’s pre-budget report was rightly welcomed as both bold and imaginative. He needs to send a similarly strong economic and political message in the budget. In framing his budget judgement I hope Alistair will recall his prescient warning last August that the downturn could be the worst for 60 years.
That warning hit the media like a stun grenade. Initially they did not know how to react, or what to make of his suggestion that the recession could be deeper and longer lasting than people expected. Once their confusion cleared they realised that one UK economist had already issued a similar siren call.
Sadly, David Blanchflower’s forecast that UK unemployment could reach 2 million by Christmas 2008 came true. Today he is warning that the jobless total could rise towards 4 million in 2010 and that this recession could prove more protracted than any in recent decades. So don’t go looking for any green shoots among the Darling buds of May. The budget priority must be to maintain the momentum to recovery.
Although this is no time to be reckless, more not less public investment is needed to create jobs, and taxes on lower incomes must not rise, indeed should be lowered if possible. This is such an extraordinary crisis that the usual borrowing rules which fixate the Tories and their media allies must be set aside. Otherwise the economy and with it Labour’s electoral prospects will stall. A time in short for boldness.
The fascinating thing about this whole crisis is that, if politicians of all hues were totally honest (and I am a red blooded Labour boy all the way) none of us really knows how to fix it. None of us really knows if fiscal stimulus will work and none of us has been here before. Indeed, the world has never experienced this strange tightening of the availability of credit before. And this is because never before has the world’s economy relied so very heavily on the principle of debt, particularly personal debt. We can not return to those days where each individual has four credit cards and we all take 2 holidays a year on credit: so how can Japan start selling so many cars again as it was before? How can the City of London regain its pole position when financial services have been annnihilated. Very hard to see how these things can happen when credit is never again going to be so easily avaiilable. What I do know, and agree with Peter on, is that the alternative party (those old devils in blue) propose absolutely nothing. Their philosophy is to sit back, hold tight and see what happens. It is not in their interests or in their blood to help the poor or to do anything to intervene in this huge Darwinian economic struggle. Peter is absolutely right that we need our government to do what government’s SHOULD do – interject, act, ‘do stuff’ – because the alternative is morally wrong and will only serve to make the recession harder and deeper. The Tories should be utterly ashamed of themselves – but what’s new there?
A greater concern should be the plight of well qualified JSA claimants who, due to the fact that they are living with a partner, married or otherwise, are likely to be precluded from JSA entitlement after the first 6 months, when JSA becomes means tested. I accept that the government has reduced the waiting period for help with mortgage interest costs to 13 weeks from 5.1.2009-albeit an example of cynical ‘lip service’. What help is to be offered to people in rented accommodation, primarily young people?