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The Challenge

This week, or ‘five days in May’, as it could become to be remembered, the focus of political analysis has been on the fine detail of who, what, and when will be the shape of this new and novel British government of co-operative rivals.

Concessions have been made on the timing and level of various policies, personnel have been appointed, hands have been shaken with royalty.

But all this is the warm-up act, and when the applause dies down the reality of the challenge facing the new Parliament is that the United Kingdom is dangerously in debt, and remains at serious risk of default unless public spending in bought under control.

None of the parties have been honest about the scale of this challenge. The IFS report in April quantified the levels of evasion, and it is little comfort that of the three the Liberal Democrats were the least obfuscatory, given their figure is nearly £35bn a year. Similarly the Reform think tank pointed out last December that you cannot tackle this problem without cutting front-line services.

This is terribly hard-line, but it is also honest. Many of our public services are being paid for by borrowing from future generations. This could not continue for long with stable population growth, but with an aging population, and growing hostility to immigration it is borrowing from future generations that might never arrive.

Easy populism, hard economics.

The Labour argument that reducing any spending, even the Conservative’s modest £6bn, is akin to ‘removing money from the economy’ can be dismissed as desperate election spin. Short of burning or burying it, you cannot remove money from the economy, and public spending for current needs based on borrowing rather than real income breaches Gordon Brown’s own  Golden Rule.

Labour then came to power agreeing that borrowing for wages and welfare was wrong, and left it printing money to do the same.

The new Government then faces the political dilemma that they have promised not to act too swiftly or too deeply in order to win the election. But to win the next election they must either cut swiftly and deeply now, and hope time heals the wounds this will cause. Or risk further cloud-cuckoo denial, tinker, and hope the markets don’t intervene to force them before their time is up.

We can look to Ireland and Greece for the pros and cons of each approach.

That though, after the champagne corks have stopped flying and the first Liberal Ministers since the war have taken to their offices, is the challenge of this Government. Fail this and many other ambitions, taking the poor out of tax, developing the green economy, boosting early years eduction will fall to necessity, be half done, or be undone by the demands of creditors.

And either way we can be sure the process of attacking whatever is proposed will revitalise and refocus the Labour opposition, and those on the losing side of cuts may be receptive to their message. 

Labour may not automatically thrive in opposition. The threat to Labour moderates, their most credible electoral assets, from their ideological left-wing, is more acute today than at any time since the Kinnock era. But they are not as obviously internally obsessed with their own trivia today as the Tories were in 1997, nor is their brand as poisoned. The problem in 1997 was perceived to be the Conservatives more than their Leader, for Labour in 2010 the reverse is true, and the Leader has gone. With discipline and a clear result in their Leadership election they can recover quickly.

As a political and economic challenge then it one of the most difficult pitches faced by any Government since the inter-war period. Let us hope we are ready for an historic programme of change, not just an historic moment of politics.

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