Taxes reduction
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If the cuts don’t work, we bank on Mr King Anatole Kaletsky Timesonline 22Sept2010Official forecasts look good, but what if growth doesn’t happen? Don’t look to the coalition for a plan B
Everyone likes to sound original. So because it seems very obvious that the economy and the coalition Government are about to suffer a series of potentially crippling body blows from the toughest programme of tax increases and spending cuts since the 1930s, the original thing to say these days is that the cuts are going to be successful, both as an economic policy and as a political strategy.
At the cost of sounding boringly unimaginative, let me explain why the more conventional view about the fiscal cutbacks is probably right. We must begin with a genuine paradox. It is generally assumed that the harsh public spending cuts that will be announced next month by George Osborne will be highly unpopular, but that voters will accept them as the price to be paid for restoring the Government’s credit and improving the nation’s economic performance. The political reality, however, is the other way round.
Many voters are quite enthusiastic about cutting spending, reducing welfare benefits for the work-shy and extravagant pay and pensions in the public sector. The trouble is that these cuts, desirable as they may be for the economy and the social fabric in the long term, are more likely to damage than to improve growth or employment prospects in the next year or two, and an economic slowdown, if it happens, will thwart the Government’s deficit reduction plans.
Thus the greatest challenge to the Government next year will not be the harshness of the spending cuts. It will be the risk that these tough budgetary policies fail to achieve their advertised objective of strengthening the economy and improving public finances.
For David Cameron, this situation will not be disastrous, since many of his Tory supporters will relish the decimation of the public sector, as well as looking