If we hadn’t already worked out that this month’s Budget is going to involve some serious pain, Prime Minister David Cameron was keen to emphasise the point today. His latest speech on the economy was perhaps his gloomiest yet, attacking the economic mismanagement of the previous government, pointing out that we’ll soon be spending £70bn a year just on servicing our national debt, and reiterating the need for the UK to address its problems head-on. He insists this (along with better, more independent economic forecasting) is the only way to restore confidence in the UK. But we haven’t got much to be confident about at the moment…
One of Cameron’s main arguments was that the previous government relied far too heavily on a (unsustainable) boom in financial services, immigration, and, perhaps most significantly, state spending. He bemoaned the fact that since 2007, the private sector has shrunk to 2004 levels and shed 3.7% of its workforce – while the public sector has actually seen spending rise 15% and increased employment. ‘It really has been a tale of two economies,’ he said. ‘A public sector boom, and a private sector bust.’ He also talked about the mistakes and inefficiencies of various Government departments. So it’s pretty clear that he thinks the public sector should bear the brunt of the imminent pain.
All Cameron’s dire warnings – about a loss of confidence leading to higher interest rates, which in turn mean higher mortgage costs and lower employment – clearly have a political purpose: to prepare the ground for this month’s Budget. And perhaps the theory is that if we're prepared for the absolute worst, we may end up being pleasantly surprised by George Osborne's austerity measures. But he’s hardly alone in his gloomy outlook. Disappointing US jobs data and more worries about the Eurozone have fuelled fears of a double-dip recession, hammering stock-markets all over the world today (the FTSE is currently down 30-odd points, with the pound slumping further against the dollar).
Nonetheless, he has to tread a difficult line when communicating this sort of message. Look at Hungary, whose new PM sent its currency plunging on Friday by warning that the country could face a ‘Greek-style’ financial crisis and default on its debts. Cameron was thankfully rather more moderate today; in fact, he said explicitly that the UK was in a much healthier situation than Greece, although he suggested the latter's situation ‘stands as a warning of what happens to countries that lose their credibility, or whose Governments pretend that difficult decisions can be avoided.’
The Government is keener to draw parallels with Canada, which managed to cut public spending by about 20% in the 1990s. But as the unions have been quick to note, that’s inevitably going to mean some serious pain.
In today's bulletin:
Cameron: UK's problems are 'even worse than we thought'
Recession worries push sickies to record low
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John Vincent: How to be a good leader
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