Thus far George Osborne has done an exemplary job, just about faultless. He has slowed down the vicious downwards spiral into oblivion which Labour had us engaged on to the point where now the government is only a few years away from only spending what it earns, whereupon we will be able to stop borrowing. In doing this he has started to trim the state a little bit in order to rebalance the economy in favour of the private sector, which generates all the wealth.
The two most powerful mechanisms that are in play now are inflation and the devaluation of sterling, which are closely related. Inflation is about twice what it should be, fuelled by high global commodity prices, the low value of sterling and the inevitable effect of £200 billion of quantitative easing. None of these are going to go away fast. The effect of this inflation is to reduce real values, so the value of the government debt is eroded away, the value of houses are in a bubble that will gradually deflate and the real spending power of fixed salaries goes down. All these are good for the government, but less good for individuals who are also seeing their savings eroded.
The devaluation of sterling is not very good if you are a holidaymaker accustomed to years of it being over valued. However at the more realistic level it now sits our manufacturing industries are booming. For instance Jaguar and Range Rover have a financial competitive advantage over BMW and Mercedes in every market to add to their product advantages. This boom in manufacturing is being accompanied by very strong growth in our most important earner, the financial sector. We would be in very big trouble indeed if it weren’t for the earning power of our banks.
So what can we expect from the budget? Osborne is a very progressive chancellor. He looks after the poor far more than Gordon Brown did. But in a different way. Brown threw ever increasing amounts of hard working taxpayers money at an indolent underclass who were very happy to be parasitic on the state. This multi billion pound experiment in socialist theory failed. When Eastern Europe joined the EU hundreds of thousands of Poles came to the UK and easily found jobs and contributed to the economy whilst a huge chunk of the native population sat on its backside living off the work of others. Osborne has a different tactic, he makes it ever more worthwhile to work and ever less worthwhile to not work. This is vastly more sensible. Expect to see him do more and more of this over the years.
The main employers in the private sector are SMEs (small and medium enterprises), yet the last Labour government made it nearly impossible for them to actually conduct business. In the name of socialist theory, health and safety, political correctness and diversity they drowned business in regulations and red tape. They made it very difficult for individuals to show enterprise and to work to generate the wealth that this country needs. Osborne needs to massively reverse this, the UK desperately needs the disincentives to enterprise to be stripped away. Restrictive employment laws, especially, must be peeled back.
The budget itself will be business friendly. This is because it is only businesses that can generate profits. It would be nice if we can de-nationalise the businesses that the state owns which it shouldn’t own. The Post Office, the London Tube, the Royal Mint etc etc, it is quite a long list. Then they would become a lot more efficient in the economy.
One piece of idiocy that has to go is the Fuel Price Escalator, originally conceived by the Conservatives at 3% above inflation per annum this was a mechanism to gradually correct fuel prices from being too cheap. Labour converted this into a cash cow to help finance their profligate spending, increasing it to 6% above inflation and keeping it going long after the prices were corrected. As a result of this we have the most expensive fuel in Europe which genuinely stifles our economy. Although the Escalator was officially ended as a mechanism after popular protests, in reality the mechanism still remained with Labour implementing above inflation tax increases until the price of fuel was 75% tax, which is patently wrong.
Overall this will be an interesting budget, undoing the damage done by labour and promoting economic recovery. Two policy objectives that are actually the same thing.