Things to bear in mind on Budget Day

It’s difficult to see how the Government gets a good story out of today’s budget, especially coming on the same day as new, presumably grim, unemployment figures. The question for the press is which of the three lines of attack they choose: ‘borrowing out of control’, ‘public spending to be slashed’ or ‘tax bombshell’.

There will no doubt be some items the Government hopes will get positive coverage, possibly green measures, like the ‘scrappage’ scheme (‘green’ because new cars are generally more fuel efficient and environmentally friendly than old ones) or the electric car subsidy we heard about the other day. But the headlines will still be overwhelmingly bad.

In all the analysis it’s worth remembering that, in the end, so much depends on something which is neither easily predictable nor largely in the Government’s hands; namely how quickly growth returns (globally and nationally) and how strongly when it does.  The opposition parties may disagree with Alistair Darling’s projections today, but the crucial unknown is how quick and how strong the recovery will be.

If there is a slow, sluggish recovery, we really do face a period of austerity pincered between high unemployment, high and rising real tax rates, and deteriorating public services.  In a stronger, faster, recovery, whilst the ‘proceeds of growth’ might not be available for tax cuts or real spending increases, it would be a matter for economic and political judgement as to how quickly we paid off the aggregate public debt (which unlike the UK’s current account deficit is not outlandish).  In this sense, the question for Darling’s budget is less ‘what does it mean?’, and more ‘will it work’?  And, of course, nobody really knows the answer to that.

As interesting as the detail of the budget will be the tone of the Conservative reaction.  Given that David Cameron and George Osborne pretty much know the figures, they have had time to work on their response, so it will tell us a lot about their political strategy. It isn’t as simple as this, but the big dilemma may be whether they go on full out attack and in doing so run the risk that they exaggerate how much difference an incoming Conservative Government could make in its first years, or adopt a more measured tone, writing off Labour but managing the expectations that can be placed on a Cameron administration.

Linking both these points Conservative strategists must feel ambivalent about economic recovery. On the one hand, if it starts to come through in the next twelve months, it could lift Labour (don’t forget the Tories need something approaching an electoral landslide to win an overall majority of seats). On the other hand, the best case scenario for the Conservatives is to take control just as things are picking up, enabling them to blame Labour for the recession while the new Government takes credit for the recovery - something which, arguably, Labour achieved post 1997.