Friday, 15 October 2010

Goldilocks and the UK economy - the cuts have to be just right

A nationwide epidemic of finger-crossing is set to break out across Britain next week, as workers fear for the security of their jobs.
On Wednesday we learn just how savagely the Tory-LibDem coalition government intends taking an axe to the nation’s public service sector, as it gets to grips with the £149 billion deficit inherited from New Labour.
The knock-on damage to private business will be considerable – directly for those companies that supply the public sector and indirectly for those like retailers who suffer when shoppers tighten purse strings.
The Comprehensive Sending Review on Wednesday launches the Coalition’s tight timetable for restoring the economy. It needs to show real progress – and that means a return to respectable growth – ahead of the next general election in five years time.
This is uncharted territory. The cuts are likely to be the deepest in the G20. The supposed parallels where countries like Canada have successfully taken similar radical action don’t stand close attention.
Britain is a major player about to embark on a course of action that Goldilocks would recognise. The cuts have to be just right.
Too little would see sterling hit and raise the cost of the money, which we borrow money from around the world. Our own interest rates would have to rise accordingly. To cut too deeply, however, would seriously damage the economy and delay the recovery.
By a twist of fate, though the Tories failed to win a working majority, the resulting Coalition has supported prime minister David Cameron and his finance minister George Osborne’s claim to be sharpening the axe in the national interest.
Given that the LibDems are going to break their manifesto promise to resist higher university tuition fees, they are unlikely to put up much of a fight when it comes to Wednesday’s cuts.
So it is up to Cameron and Osborne to resist dismantling the Welfare State in pursuit of ideological goals and to live up to their claim that “we’re all in this together” by distributing the pain fairly.
Where there are redundancies they mustn’t be rushed; payoff terms must generous; and every effort must be made to help people to find new jobs. Anything less would be to punish them for the greed of bankers and the incompetence of the last government that has left the UK’s finances in such a parlous state.

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