This seemed to cheer up Labour MPs enormously after a rather difficult few days, where the poor judgment of retiring former ministers threatened to blow the government’s pre-election strategy off course. It is probably too soon to say whether the election campaign can now proceed as planned, but the budget leaves the electorate in no doubt about the difference between the parties. There is a real choice about whether to start reducing public spending this year or to delay until the recovery has been secured.
David Cameron’s reply to the chancellor displayed a huge but misplaced confidence in the efficacy of immediate reductions in public spending. But private investment is weak, consumer spending is sluggish and the risk of a double dip recession all too real. It is hardly surprising that the Tories should reveal themselves as fiscal Conservatives, but it is a genuine surprise that they should be so out of step with governments of both centre-left and centre-right across the developed world. France and Germany are continuing with stimulus policies in the next year (and in that sense are going further than the UK). Nicolas Sarkozy and Angela Merkel know that their chances of re-election depend on securing the recovery. They understand that premature fiscal consolidation could be a recipe for a devastating defeat.
Dominique Strauss-Kahn, managing director of the International Monetary Fund takes a similar view, arguing that the debt and deficit reduction must be delayed until growth has resumed. A dispassionate observer might conclude that the Conservative party is out of step with global opinion and committed to policies that other countries have rejected. George Osborne may feel rather lonely if he ever has the good fortune to find himself at a meeting of G20 finance ministers.
Of course, a Conservative critic would say that this account is much too positive. After all, the European Commission have called on the UK to develop a deficit reduction plan with more challenging targets. According to the Tory argument it’s the UK government, not the official opposition that has failed to heed the international warnings. But even the Commission have recognised that deficit reduction only makes sense once the economy has returned to growth. The difference between the UK and the Brussels bureaucrats is whether the post-recession cuts happen either fast (as the government plans) or really, really fast (which the Commission would prefer).
The big question is whether the chancellor has done enough to convince the markets that the government has a credible plan to return the public finances to health? The most obvious answer today is that we will have to wait and see. A budget that looks like a thing of beauty on Thursday morning can turn to dust by the time the Sunday papers hit the streets. On balance, it seems likely that the City’s assessment will be more positive than negative. As the numbers on tax receipts (which are higher) and government borrowing (which is lower than expected) have demonstrated there is a high level of uncertainty about the likely course of events. Tackling the deficit just got a little bit easier and could be made easier again if the economy returns to a robust growth path.
So, Alistair Darling has delivered a real Labour budget with more help for the young unemployed (the extension of the job guarantee), support for first time buyers (the stamp duty changes) support for social care and a determination to foster robust economic growth. The room for manoeuvre was limited but the chancellor has played a difficult hand well. Whether this is enough to restore Labour’s reputation for economic competence will become clear soon enough. It’s now up to the electorate to decide.