Actions Speak Louder Than Words!

Posted on 21 Oct 2010 by The Manufacturer

What a great pity that so many past governments have failed to heed the lesson of ‘what you have never had you never miss’.

Those of us that are in work and paying taxes or are maybe over reliant on the State are about to pay a heavy price. The problems that afflict the UK economy today may stem from the State having attempted to not only provide far too much but also to have a far too large stake in our individual lives.

The trouble is that the last government just forgot that ‘the more you have the more you want’ and worse, they forgot to look whether it was ever affordable. Tory governments that followed short periods of Labour administrations have consistently attempted to better rebalance what should be expected of the State and most often attempted to decentralise the role of government. They have also worked hard to create an environment that if you work you get and yet they have always ensured that those that could not follow such a dream should be catered for as well. Usually the principle has worked though occasionally I suppose that it could be argued that the timing was not always right.

To win or maybe retain votes successive governments of all colours have over the years sought to provide an ever ‘hungry’ electorate with most of what they had come to expect. Take it away or move the goalposts and along come calls that they [the electorate] are losing something that is there’s by right. Given the mess that the current Chancellor of Exchequer, George Osborne inherited in May we should not be surprised at many of the moves he took yesterday to reverse a situation that was clearly out of hand. Indeed, as we all surely no by now Osborne had absolutely no choice but to accept the new principle of government that nothing can be there of right unless it is affordable. But actions speak louder than words and the hope must be that the Coalition government does not allow CSR to be further influenced of dummed down.

An elected government has a duty of care of course to provide and attempt to ensure that the system that we work under is fair. To ensure that the democratic system of government is upheld means also ensuring financial stability, ensuring that the nation is adequately defended, providing essential public services such as health, education, policing, justice, welfare and transport. This is where ‘New Labour’ came so dramatically unstuck in its mistaken belief that the cycle of boom and bust had been broken.

As Chancellor and later as Prime Minister Gordon Brown broke just about every rule in the book. For stability read instability, for spending what we could afford read borrowing to spend. For saving read squandering and for provision of what is necessary and fair read providing what was no longer affordable.

Certainly ‘New Labour’ failed to understand that there had to be limits to what the State should provide. In the public mind it does not take long for provision to become expectation and to pay for that expectation the State has little choice but to rely on the collection of direct and indirect taxes in various forms from those that either work or maybe just spend. Governments have a wider duty of care too of course in that they are required to provide the very incentive that industry, commerce and consumer alike require that allows a nation to grow and expand. To that end one might say that governments have become the ‘drivers’ or ‘gas stations’ if you like of public, business and consumer confidence. True, monetary policy which is now partially outside of direct government control is also important too. But it is fiscal policy and its relationship to public spending that we are most concerned about now.

The questions being asked today, a day after CSR, is was it enough to eradicate the structural deficit by 2015? Has the Chancellor achieved the right sort of balance and objective or do we face an even tighter fiscal regime two or three years from now? Not easy questions to answer but I have two views on this. One is that governments rarely get the target absolutely right and whatever they attempt in terms of tightening is most usually not enough. On the other hand this is a government that set out to tackle the problem of that largest deficit in modern history head on. This is a government that fully understands the necessity of ensuring borrowing peaks at £1.3trillion in 2015 and will then reverse. This is a government that realises the dangers to the underlying potential of the economy if by 2015 we are paying out as much as £60bn in interest payments on our debt. On balance then and whilst I could express a belief that they have gone too far in some areas (defence) and too little in others (health, welfare, education and overseas aid) in terms of cuts my own view is that they have got it about right albeit that they will need to do more to create growth and new jobs.

The issue of job creation is of course paramount if the release of 500,000 public sector jobs over the next four years is not to halt the economy in its tracks. Roughly speaking and despite 2008 being a very bad year the private sector ‘created’ or took on more employees than it lost. Much of this was ironically due to an improvement in the banking and financial sectors and less fear [than 2008] that the economy would fall out of bed. Manufacturing did better too – people started buying cars helped by temporary government incentives – and the pound fell helping exports. But with 500,000 public sector jobs to be lost mainly amongst white collar workers widening motorways and roads, building new bi-passes and railways won’t be of much help to those most likely to find themselves out of work. We will have to wait and see but for the moment I am less than optimistic that the jobless numbers will do anything other than rise over the next three years unless the government can find other forms of stimulus that might lead to the creation of new jobs.

Likely rising unemployment numbers, reducing consumer confidence in terms of its affect on spending set against the lack of incentive to save, weaker housing markets and an unwillingness of industry and commerce to invest are all serious factors that may prevent any resumption of growth yet. However, I remain outside of the so called double dip scenario looking more toward a long period of flat activity. Of course through that I worry about stagnation rather than deflation. Such fears though may well prove unfounded if Mr. Osborne has got his figures about right. Whatever, how the government uses the fiscal weapon of tax taxation over and above what it has already done will be crucial to where we go in 2012. How they incentivise, how they either relax or tighten fiscal policy even further will determine the speed of GDP growth or decline from here. You may rightly argue that is just what you elect them to do albeit that we ended up with an unusual ‘Coalition’ between Tory and Liberals. No bar-humbug on that from me on that score – I want this to work because unless it does there will be no future for any of us.

So, for what we had asked from George Osborne we had better be thankful and hope that it works. Actions speak louder than words but my own view is that this vast needed CSR will work and that the pain we must all feel over the next five and ten years will in the end be worth it – provided those that follow remember the lessons of the past. Will the future be as good as the past? I doubt that it will in this generation but if we lay down the proper framework now it should be OK for our children. Is today worse than the traumas that some of us suffered through the 1970s? I would say that because the nation we live in today is infinitely more wealthy that it was back then and better invested too that this is not a patch on what we suffered back then –albeit that the government deficit and national debt was proportionately much lower than it is today. Of course, if the trade unions go wild I will probably have to eat my words but as we sit now I think the risk of industrial action appertaining to cuts could well wither on the vine. At some point any system of financial management and policy will ultimately break down and most usually when an incumbent government is kicked out. I certainly hope that this Coalition government goes the full term not least because what we need most now is stability. Right now Labour as we witnessed through the ridiculous response provided to Mr. Osborne’s House of Commons CSR statement little more than a joke. But Labour will bounce back and never again will I say, as I regrettably did back in 1992, that Labour was unelectable. OK, so that was before John Smith arrived on the scene and took Labour in hand. I make no judgment on the new Labour Party leader other than to say I was rather surprised by the choice!

Having I hope stressed that defence apart I believe what this Coalition Government set out in CSR yesterday should be just about enough to achieve mission success let me end where I began on the issue of over expectation of what the State can and should provide. Whilst, waste apart, it is true to say that within CSR the NHS escaped the Osborne knife Health is a perfect example of the ‘much wants more’ and ‘what you never had you never miss’ adage. Why? Simply because if through the brilliant research and development done by many various teaching and university hospitals, by various pharmaceutical and biotech companies, by newly developed health technology from the likes of GE or others great new processes, new drug forms and cures and equipment appear that automatically allow surgeons to provide new forms of diagnosis, clinical treatment or operations for patients what quickly appears is the automatic expectation that this should be available for all. It is a very difficult nut to crack and the politics of this issue is very difficult to direct. It is the combination of waste of resource, poor management, politics and the failure to halt public over expectation of what the State can provide that got the NHS into the mess that it is in. As I say, just how you go about changing what each and every member of the public has come to expect is far less certain and I proffer no solutions here but it is something that I believe at some point government may have to address. On the other hand it quite understandable that given the health service model that we use today and is based on the 1947 principle of free universal healthcare for all that expectation should be rife amongst the public and more so, what is available for one and in one part of the country must be made available for all. The pity as always is that the word affordability is still deemed nonsense!

CHW – London – 21 October 2010

Howard Wheeldon is the Senior Strategist at BGC Partners
Tel: 0207 894 7618 / Cell Phone: 07710 779785

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