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A battle and some hard thinking

The Budget was what we needed, and progressives need to do some hard thinking

If this week's budget was not the most exciting that is probably a good thing. It was clearly a Labour budget, with Labour priorities. But it also showed that the public finances are behaving more or less in line with the chancellor's predictions.

Given the rapid deterioration last year, that is to be welcomed. It suggests some stability is returning to public finances and to the economy following the historic shock both faced over the past couple of years. There is a now a real battle ahead in the general election. Our manifesto must reflect the new reality in which we live.

The sharp drop in confidence in the economy in late 2008 and early 2009, together with the near collapse of the banking system, should not be quickly forgotten. The government stepped in and in effect shifted the private sector debt burden onto the government's balance sheet, saving the economy from depression. That is why the deficit this fiscal year will be around £167 billion, an increase of 74 per cent on last year. It was expected to be higher. The chancellor revised down once again his estimate of the size of the structural deficit - that part of the deficit that cannot be explained by the economic cycle. That implies the task ahead to restore public finances is a little easier, but only a little. Coming down the track, and well flagged by the chancellor, are tax rises (but not on the poorest) and reductions in spending in some departments.

Investors in government bonds want to see progress in reducing the deficit and no chancellor can ignore them. However, he has to look to the long term and here Alistair Darling has pitched his budgets in the right place, enabling some stimulus to be introduced. The Conservatives want sharper and deeper cuts in spending than those already planned. This is dogmatic approach would threaten the recovery. David Cameron lambasted ‘ticking tax bombshells' when referring to tax rises on the way. He should say which tax measures he would reverse and what extra spending cuts he would implement.

The budget's focus on jobs, a universal banking obligation, help for small businesses and a green investment bank are all to be welcomed and emphasise Labour's priorities. That provides a platform on which to fight the election. A recession faced by a Labour government should be different to a Tory recession, above all in its focus on jobs. Yet with government spending unable to grow in future years, progressives must find new ways to promote equality. It would be easy to write the manifesto in the form of a long list of small pledges. Hopefully instead it will be the fruit of a rethink about how to continue applying progressive values in more straitened times. Post election, that thinking must continue. Now of course, we need to work to ensure we are doing it in government.

This article was published on the Progress website on 26 March 2010.

Progress, 26 March 2010, 26/03/2010

Not an easy task given uncertainties, especially if energy and commodity prices do fall later in the year. Ultimately, radical economic reform required.
Central banks are struggling to head off general inflation while dealing with price shocks that will be negative for growth. They waited too long, which has made their tasks more difficult.
The Bank of England has raised interest rates, but that does not mean it has been most effectively managing inflation risks.
The Bank should signal it will act if higher prices look likely to translate to higher inflation rate.
The IMF's Fiscal Monitor is actually quite radical.
Spare a thought for finance ministers, and the opposition counterparts who aspire to replace them. The conventional wisdom was that they should at least make an attempt to follow fiscal rules. Now, there are no rules.
My letter in the Financial Times on the need for a framework for economic policy decision-making.
Responding to Brian Griffiths' article in The Article on the risks of inflation.