Neil Greenaway: The bitter taste of fiscal medicine
Oct 21 2010 By Neil Greenaway
In the old days medicine tasted bad. That’s how you knew it was good for you.
But in the modern world there is little appetite for the unpalatable remedy. Our elected representatives are acutely aware of this and for the last 30 years have avoided certain election defeat by promising ever greater spending from central Government, based on voodoo calculations, assuming an ever increasingly productive and profitable future.
Three years ago this particular merry-go-round came to a grinding halt.
The Chancellor George Osborne has taken the first steps in administering the nation a spoonful of something pretty sour, which in time, it is hoped, will cure the nation’s budgetary ills. It is a risk. It is a strategy that is widely and openly disputed.
For small businesses around the country, and for those in the manufacturing and industrial heartlands of the Midlands, this is tough love indeed.
Far from a once and for all shakeout, the announcement heralds an extended period of uncertainly as departments fight over budget allocations that now appear to diminish into the future.
In this column we have many times reiterated the concerns that business owners have; the most fundamental being a lack of confidence. Although all agree that “something needs to be done” about our structural deficit, there was such a focus on the public sector, and so little on encouraging the private sector, that it is hard to see how this will increase business confidence.
The promise of long-term financial stability is crucial and the bond markets and rating agencies will applaud the program to eliminate the structural deficit by 2015. Now the Government must get behind small business es in a big way to soak up the loss of half a million jobs.
The Chancellor did try to add a little sugar to the pill, increasing schools budgets, green lighting some £30 billion of capital expenditure, and providing some extra finance to help UK manufacturers export into world markets, but when considered along side the estimated 490,000 job losses from this review, they seemed like tokens.
Alan Johnson, Shadow Chancellor accused the Chancellor of taking a “reckless gamble” in this unprecedented spending review.
However, in my view, the opposition alternative makes failure a dead cert.
Tough times indeed!
Neil Greenaway, Clifton Asset Management