Chancellor delivers early strike

This week’s emergency Budget was, rightly, trailed as a “once-in-generation”
opportunity for the new government to shape the future of the UK economy for
decades to come.

As in 1945 and 1979, we had reached the point where tinkering and incremental
change was not enough. Radical action was needed from Chancellor Osborne, but he
had a very difficult balancing act to achieve. As well as shrinking the
unsustainable fiscal deficit and mounting national debt, he had to ensure that
the nascent recovery stayed on track, as well as putting down a marker for
longer term tax reform and protecting the most vulnerable members of society.

Striking early in the new government’s term was essential. The mess could
still legitimately be attributed to the previous administration – bad news was
expected and this government would be able reap the benefit later in the
Parliament. To complicate matters, there were sacred cows and he had stated the
intention that of every £5 of deficit reduction, £4 would be from spending cuts.

It is hard to imagine a more challenging agenda for the youngest Chancellor
in 120 years in his first job in government. On the day, however, Mr Osborne
talked tough. He met the key issues of the deficit, national debt, the welfare
budget and the public sector head on, yet could still point to growth forecasts
from the independent Office for Budget Responsibility that had GDP increasing at
or above trend rates from 2011 onwards. In addition the unemployment
consequences of the Budget (declining every year to 6.1% by 2015) were higher
than in Alistair Darling’s final Budget but nowhere near as bad as the
pessimists were predicting.

There are grey areas. Whether exports and investment fill the hole left by
consumers and government spending is a big issue, particularly in view of what
is happening in the major market of the EU. But most economists have been
arguing that this rebalancing of activity is essential and the forecasts reflect
it. The chancellor’s first Budget speech was confidently delivered, broad
ranging and spread the pain as widely as he had promised. The poorer young and
the poorer old were helped and business fared better than consumers. A pretty
good first effort.

Dennis Turner is chief economist at HSBC

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