The Politics of Life on Mars
Yesterday's Emergency Budget has changed the political terms of trade.
We now have a Labour government which believes in high public spending, is prepared to borrow to the hilt to sustain it -- then some more to finance a bit of Keynesian pump-priming -- and wants more distribution of wealth through taxing high-earners. And a Conservative opposition which thinks we're borrowing too much, has abandoned Labour's public spending plans, doesn't think pump-priming will work (and even if it might we can't afford it) and is distinctly sniffy about any more redistribution. The battle lines are drawn. Let battle commence. Life on Mars politics begins here!
Of course, it's not quite back to the future. But some of the ideological fault lines of the 1970s have re-emerged -- as has dependence on debt.
The government has decided that, though public spending is now over £650 billion and rising, it cannot cut its costs by any significant amount even though its revenues are collapsing. It also wants a fiscal boost to mitigate the effects of the recession. The cumulative effect of these two positions will add half a trillion pounds to government borrowing, doubling total net borrowing to over £1 trillion by the middle of the next decade. There is no prospect of any of this debt being paid back before then.
The extent of the government's gamble can be seen in the next financial year (2009/10). Even though the Chancellor claims growth will return to the economy in the third quarter of next year, he still plans to borrow almost £120 billion. So, even though the government forecasts that three out of four quarters in 2009/10 will show growth, annual borrowing will reach a record high, even for wartime.
Of course, if growth does return as strongly as the government predicts then the Chancellor will claim that the borrowing was justified. But if, by next year's Pre-Budget Statement, he has to report that the country is still in recession (which is what many City economists think), then not only will his credibility be knocked sideways -- so will his sums and he will end up having to borrow so much more that the gilt markets might simply go on strike and the government's fiscal strategy will be in ruins.
The future course of British politics now depends on the outcome of the government's predictions of a return to growth by the summer of 2009. If it happens, Labour has a good chance of a fourth term; if it doesn't, the Camerons will start measuring the drapes for 10 Downing Street.
This morning we'll be debating the new political landscape with leading lights from the parties including former Cabinet Minister Peter Hain; and, amidst everything else, you may have missed yet another U-turn from the Chancellor - this time over plans to penalise half-empty flights. We'll hear from one politician who says Labour budgets are now written in water not stone.
All that and the former editor of the Sun David Yelland will be here talking about the power of the press. Hope to see you at noon on BBC2.