BRITAIN has entered a new political era that remains uncertain, but probably means less gloss and a lowering of expectations.
THE coming age of austerity about to engulf Europe will have an acute intensity in Britain, where the new political agenda is about savage budget cuts, tax increases, pay freezes, public sector strikes, scaling back in Afghanistan, shunning foreign adventurism and under Tory leader, David Cameron, embracing pain now for gain down the track.
Britain is a wreck yard of false dreams. The ambitious over-reach of Tony Blair is discarded. The prosperity bubble created by a highly leveraged financial sector has bust.
The revenue-fed structure of public services and welfare has proved unsustainable. The Anglosphere hubris is over. Yet a hesitant Britain declined to elect a Tory government in its own right at the recent general election.
Amid a mood of general unease the new government has struck out with stunning decisiveness. For the first time in more than six decades Britain has shared its Treasury benches – this time with Tory Prime Minister Cameron in league with the Liberal-Democrats led by Nick Clegg, now deputy prime minister. This experiment in governance coincides with a historic challenge for Britain’s public policy.
The price of coalition is political reform spearheaded by a Clegg-proposed referendum to switch the voting system to Australia’s preferential method (called the alternative vote or AV in Britain), a change designed to help his party and validate its decision to govern with the Tories.
The justified flight to Keynesianism after the 2008 collapse of financial sector confidence is over. Anyone who thinks Keynes is the new operating rule is misinformed. The most strategic and fateful decision of the Cameron-Clegg team is an austerity program, not canvassed at the election but more daunting than anything Margaret Thatcher tried. The notion that Cameron might outbid Thatcher, once fanciful, has come to pass.
Indeed, it seems that Britain’s political system, let alone its public, is starting to realise the meaning of last month’s budget unveiled by the boyish-looking Chancellor, George Osborne. This is Britain’s last summer before a bleak, protracted winter.
The story, as ever, is in the numbers. The chancellor’s strategy is contested along the current classic economic divide: is the priority debt and deficit reduction, or keeping the fiscal stimulus alive to compensate for weak private sector activity?
Cameron, Clegg and Osborne, within days, took the defining decision of their government. It is Tory housekeeping on a punitive scale unmatched for many decades. Cameron’s rhetoric invokes the scope of the crisis.
“I personally believe we don’t have to accept things the way they are,” he said recently.
“Imagine if Germany had given up after World War II leaving the bombed-out factories on the Ruhr lying dormant. Imagine if South Korea, after years of war, surrendered to its fate as an economic backwater in the 1950s. Imagine if Margaret Thatcher had seen the British economy in the 70s wracked by strikes and deep in debt and decided just to manage our decline.”
The depth of the recent recession means that Britain’s economy was 4 per cent smaller at the end of 2009 than in 2007. While the private sector declined, the public sector expanded with national debt at pound stg. 770 billion ($1.3 trillion) and, without correcting action, is expected to double in five years. The budget documents are a sobering read. The budget deficit at 2009-10 was 11 per cent of GDP and projected to be the worst in Europe. It constitutes a fiscal challenge “larger than any other advanced economy.” In the three years to 2009 public spending rose from 41 to 48 per cent of gross domestic product and tax receipts fell by 2 per cent of GDP. Before its defeat Gordon Brown’s Labour government outlined a firm fiscal program, but the Tories have gone further. Their policy is a reduction in the budget deficit equal to 8 per cent of GDP in the five years to 2015. Osborne wants to prevent “a catastrophic loss of confidence” in Britain.
An unpersuaded Financial Times economics editor, Martin Wolf, said: “Perhaps only such a young government – in age and in time in office – would gamble so much on such a fast adjustment so early in its time in office.”
The fiscal crunch will comprise 80 per cent from spending cuts and 20 per cent from tax rises. There is a two-year freeze in public sector pay and reduction in public sector entitlements. Public sector job cuts are inevitable.
Value added tax rises from 17.5 per cent to 20 per cent from next year. Most departments face an average real spending cut of 25 per cent over four years. Some departments are likely to face cuts of up to 33 per cent.
Frontline public services will be diminished. While pensioners and low-income earners will be largely protected, some welfare payments will be hit. The National Health Service is supposed to be protected but this makes for neither good policy not tenable politics. The scale of the tightening is the most serious for decades.
Osborne has tried to enshrine fairness in the distribution of the pain. Cameron says he wants to carry the public behind him in this austerity. At the election, the combined Tory-Liberal-Democrat vote was just below 60 per cent.
There are, however, doubts about the political viability of such reductions. The strategy means slower growth in the near term to deliver stronger growth down track from confidence in public sector finances.
Acting Labour leader Harriet Harman has targeted the Liberal-Democrats, a party from the Left, as the weak link. “How could they support everything they fought against,” Harman asked. “The Liberal-Democrat leaders have sacrificed everything they ever stood for to ride in ministerial cars and to ride on the coat tails of the Tory government.”
Cameron’s calculation is to seize the high ground of policy authority and impose difficult decisions when his political capital is strong. This is forcing a re-assessment of Cameron’s political character. He embraced the coalition with Clegg out of necessity yet opportunity. He seeks shared political responsibility for the austerity while his incorporation of the Lib-Dems helps to change perceptions of the Conservative Party. It is early days but Cameron has acted decisively.
For years the media emphasis has been on his youth, pro-green credentials and effort to re-badge the Tories away from Thatcherism. Yet Cameron’s entire life marks him out as a natural Conservative leader. Fiscal reality means his will become a less ambitious conservatism for Britain with a contraction in global commitments, if not its interests.
There are two great risks in Cameron’s strategy. First, the government may have misjudged the balance of economic risk: its budget is bound to be blamed if Britain’s economy stays too weak for too long.
If the real problem does prove to be lack of activity, then the Tories will be judged to have pushed too hard. Tied into this fear is the danger of civil disturbances if this agenda is implemented. Second, the economic strategy may prove incompatible with coalition government.
How much tolerance do the Lib-Dems have for economic hardship? Will their MPs revolt? For how long can a party attack its own public sector base? Nobody knows the answers. But this is where Clegg’s political reform agenda becomes pivotal.
The referendum on preferential voting is next May and Clegg faces an uphill task to see it carried. The Tory position will be a mixture of opposition and running dead. Most Conservatives want to keep first-past-the-post voting and oppose the Australian model. The likely impact of AV would be a transfer of seats from Tories to Lib Dems. If the referendum is defeated, Clegg is exposed for failing to win a reformed voting system to assist his party while being locked into Cameron’s austerity agenda.
The reality is that the Coalition can only endure in the long-run with some shift in the Lib-Dem political character. That is hard to imagine. If the Coalition does split then Cameron, no doubt, will see that as a political opportunity to seek another election and govern in his own right. The underlying story is that Britain has entered a new political era that awaits definition but probably means less gloss, more hardship and lower ambitions.
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