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National politics

The big game

Last Thursday I went to the Royal United Services Institute at 61 Whitehall to hear David Cameron do his debt crisis thing. I had been hoping, idly it seems, for some red meat. The essence of what Cameron said, see speech here, was that some hard choices will have to be made but fiscal responsibility needs a social conscience, or it is nothing.

Cameron is trying to blunt any possible Labour attacks that the Conservatives will “revert to type” once in government and that they will slash and burn their way through the public services.

Cameron is wise indeed to be wary. Whoever is returned after the next election will have to make some truly eye-watering changes to public spending. We are talking in the order of £100 billion here. Read “Bankrupt Britain” if you think I am exaggerating. Cameron knows this and so does Gordon Brown.

Gordon Brown invented Comprehensive Spending Reviews when he was chancellor in order to take a long term view and make spending decisions every two to three years. In the Observer today Andrew Rawnsley reports that:

A comprehensive spending review was due this summer. Gordon Brown has quietly told Alistair Darling to scrap it.

So the father of the Comprehensive Spending Review is quietly putting it to death so that he doesn’t have to face facts.

Maybe our politics over the next 18 months will be a poker game where Brown bluffs that we can carry on as we were once the storm has abated and whilst Cameron bluffs that merely controlling the expansion of the state will be enough to bring Government debt under control. I hope not. After the next election one of these men will have to come clean and admit that the public sector is going to have to be significantly curtailed. I hope that Cameron does it sooner rather than later.

2 replies on “The big game”

Red meat would be Cameron, you, Councillor Gibb or indeed any Ealing Conservative Party member telling us all what your party would do now to deal with this Depression.

I remember you telling me many months ago now on this site that the recession would be short-lived. I disagreed with you then.

I don’t profess to know the answer but I suspect that ‘curtailing’ the public sector is not the answer. However it’s clear to me that reforms in the public and private sectors are well overdue.

Eric,

You might read Cameron’s speech. Although I might have liked to hear some more detail about how he would curtail public spending he did talk about the importance of restoring confidence. Talking about “this Depression” probably isn’t part of the answer Jeremiah old boy.

A vital part of that restoration of confidence will be convincing the markets, which we still can’t buck even if they have been tarnished somewhat as infallible allocators of resources. The markets will have to be convinced that public finances, for that matter all of our debts, are sustainable. Our deficit is looking like hitting near enough 10% of GDP this year and next – totally unsustainable. Gross debt will probably go way over the £1 trillion that has been discussed. Again totally unsustainable.

Again, read Bankrupt Britain. If we don’t take something like £100 billion out of public spending we will end up with high inflation, high unemployment, high interest rates and no growth.

What I said in October was:

I am sure that we are going through a worrying, albeit temporary, crisis but I can’t help thinking I have seen it all before. I remember the secondary banking crisis of the early seventies because my Dad lost his job in ‘74. Do you remember it? Remember the Latin American debt crisis in the late eighties that almost broke Citibank? I was doing business with Citibank just after that so I do. How about the $60 billion bailout of the US savings and loans (building societies) in the late eighties – the US government made a small profit out of this transaction. I’d almost forgotten that one not having been even remotely involved.

This crisis will all seem very distant and unimportant before too long.

I didn’t say “short-lived” but I do say it will end one day. I suspect we might already be at the bottom. The road back will be long, it was in each our previous post-war recessions. I was trying to offer a bit of perspective. The point I was trying to make was it was not the end of the world. In that piece I referred to talk of a national unity government. It really is not that scale of crisis.

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