The Budget - 27th March 2011

What was significant about the budget was what the chancellor didn’t do: he didn’t come back for more; neither more cuts nor more tax increases. This is a consequence of the very tough action taken last year in the emergency budget immediately following the general election. 

Last Saturday’s demonstrators should reflect on this and on the crisis facing Portugal. Our public finances are much worse than those of Portugal.

Indeed, if the coalition government had followed Labour’s plan for deficit reduction then, in five years time, we would only then be at the same stage as Portugal is now.  It was the decisive plan in last year’s budget to eliminate our deficit in the lifetime of this parliament that has rescued us from the crisis that engulfed Ireland and is now threatening to engulf Portugal.

Despite having the worst deficit of the G20 nations, we are seen as part of the solution rather than part of the problem. We have lent money to Ireland as part of their rescue plan, of course –given our own deficit-we had to borrow the money first in order to then lend it to Ireland, but such is our credibility in financial markets consequent on our own tough deficit reduction plan, we can borrow at 3% and lend at 7%.

If the weekend demonstrators had their way and we were to abandon, or even everso slightly modify or deficit reduction plan, the reaction of the financial markets would be swift and brutal: instead of being able to borrow at German rates of interest we would have to start paying what Ireland and Portugal are paying. Mortgage repayments would go through the roof and businesses would be really squeezed. It would be disastrous for employment and the recovery.