George Osbourne's emergency budget

I'm a bit wary about posting too much about the emergency budget, especially given that for G&P students taking AS, the autumn spending review will have happened by the time the exam season rolls around in 2011. I think the graph below (from the BBC) summarises the problem for the Government quite nicely, in that it shows the scale of the spending-cut and tax rises needed in the coming parliamentary session to reduce the budget deficit:

In short, as indicated here in a BBC article, the cuts announced by the coalition government are huge, but aim to balance the government books by 2016 (i.e. after the next projected election). There is much uncertainty, especially given that the coalition will face extraordinary pressure, and there is the possibility the government won't survive the next 5 years intact. More thorough business analysis here from Robert Peston and an economic view here from Stephanie Flanders, and here from the Economist magazine. The Think-Tank the Institute for Fiscal studies has a page here of useful links.

The interesting stuff for G&P students is contained here in an article by Bagehot in the Economist: that this budget challenges the dominant political orthodoxy of the past 12 years, that government spending has to increase:

Mr Osborne’s statement shattered and reversed the orthodoxy, which took hold in the last decade, that public spending must grow eternally. It has revised the relationship between the state and its employees, and signalled a reconfiguring of welfare support, which is set to be more generous to some of the very poor and stingier for many others. It was the start of a bid to create a new balance in the British economy: between the public and private sectors, and among industries and regions. This was the most painful budget in living memory, and one of the riskiest.

In short, the government deficit has encouraged the Coalition to think radically about certain areas of public policy, like removing income-tax for the less well-off, and public pension reform which previous governments have been wary of tackling. Nick Robinson highlights some of the impact the Lib Dems on the budget here. Don't forget, that Lib Dem Danny Alexander is the Chancellor's right-hand man as Chief Secretary to the Treasury.

Labour has not yet found a way of attacking the government policy except to decry it as a return to Thatcherist cutting of public spending; Polly Toynbee in the Guardian puts it this way:

There was nothing "unavoidable" about adding £40bn to Labour's already eye-watering pledge to halve the deficit in four years. There was no necessity to create a surplus in six years, returning to depression economics with mortal risk of sinking the country into second recession or slump. This was the budget to fulfil old Tory yearnings: it promises to shrink the state below 40%, which Mrs Thatcher never achieved.

There are, and will continue to be, complex arguments about the economics of all this which are not within the scope of this blog. We'll all see soon enough what the effects of these policies are; growth, or a disastrous double-dip recession.