Liam Dann 's Opinion

Liam Dann is the business editor of the NZ Herald

Liam Dann: Britain opts to take its medicine now

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British Prime Minister David Cameron and his Chancellor, George Osborne, this week delivered a Budget that was unambiguous in backing business to lead the nation out of the economic doldrums.

In their London squats, the crusties and students will already be painting placards. It's a good bet there will be riots in the streets at some point because this was a hard-arsed, 80s revival, Thatcherite Budget. It'll be time for a new series of The Young Ones after this one.

As well as corporate tax cuts which mirror those made in New Zealand last year, Cameron and Osborne have unveiled plans to dramatically slash spending.

A target of £80 billion ($171.9 billion) in cuts over five years equates to $35 billion a year in New Zealand dollars. By comparison, John Key's $800 million target for this year's Budget looks pretty tame. Per head, the British cuts are nearly three times as deep as ours, so in New Zealand we face cuts of about $190 a person compared with $564 in Britain.

Punchy left-wing tabloid the Mirror didn't hold back in its coverage.

"Hard-working families, pensioners and the jobless were hammered by George Osborne yesterday as he tried to con voters with a fuel and tax swindle that left millions worse off," reporter Jason Beattie wrote.

That's probably a fair reflection of how this Budget will be received by many working-class Brits feeling the sting of inflation-cut spending power while many of the social services they have come to expect are trimmed or abolished.

But the Brits have only to look at their neighbours - the Irish to the west and Portuguese to the east - to see that something radical needs to be done or more aggressive austerity measures will be forced on them.

The Portuguese Parliament put politics ahead of pragmatism this week and rejected a Government proposal for Budget cuts.

Prime Minister Jose Socrates resigned and the nation faces the prospect of debt default or a European bailout. Either way, they're likely to lose control of their economy.

In contrast, the Tories have attacked on both fronts.

"We're putting fuel in the tank of the British economy," Osborne is quoted in a considerably more favourable review by the Daily Telegraph.

In response to critics who say the economy is still too weak for this level of attack on the deficit, Osborne's message was simple: "We have a plan and we're sticking to it."

Good on them for that. Faffing about with half measures won't get anyone out of the economic quagmire. There's a legitimate debate to be had about how fast a government can afford to attack the deficit without causing another recession or long-term social damage (for which we pay later).

Labour parties both here and in Britain will argue these policies are too harsh and the medicine may do more harm than good.

The Tories are betting big on business getting them out of a hole. Britain is lucky to have an oil reserve - which it has opted to tax harder to fund a fuel tax cut - but otherwise is largely dependent on manufacturing and financial services to grow the economy.

But politically, it's a risky bet. The public is still angry at bankers for their part in the economic meltdown, but must also acknowledge that in the good times they were happy to let the bankers act as frontline troops in the global battle for wealth.

Now not only are the public still feeling the pain of that meltdown but they are being asked to let the bankers and the businessmen lead the way out.

To cite one last British newspaper, Hamish McRae writes in the Independent, that this is a big bet and will require some luck by way of global recovery to pay off.

"This only works if we get decent growth - solid thumping growth of close to 3 per cent a year by the back end of this Parliament." Hamish McRae writes.

But he acknowledges the Budget targets growth and "that's a start".

On May 19 when Bill English delivers his next Budget, we can expect similar debate. National will have to borrow more to pay for the quake but they're sticking to their plan. They won't tax more and to keep attacking the deficit, they'll need to cut spending.

Some will say that's a big bet too. But perhaps it's one the nation can't afford not to make. Certainly, when we look at Britain we can take some comfort that the stakes here are not yet so high.

liam.dann@nzherald.co.nz
www.twitter.com/liamdann

- NZ Herald

Liam Dann

Liam Dann is the business editor of the NZ Herald

Liam Dann is the Business editor of the New Zealand Herald, overseeing all our business content in print and online. He has been a journalist for 20 years, covering business for the last 14 of them. He has also worked in the banking sector in London and travelled extensively. His passion is for Markets and Economics, because they are the engine of the New Zealand economy.

Read more by Liam Dann

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