A dangerous indulgence in post-electoral optimism
-Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of âVerdict on the Crashâ published by the Institute of Economic Affairs. The opinions expressed are his own. -
It really is hard to resist the temptation to take a hopeful view of Britainâs new government.
I say this not because I am a fan of coalitions. They are an unfortunate necessity, something to be avoided at all cost in normal times â but these are not normal times.
In fiscal terms, we face a wartime situation, and the fact that there are no enemy aircraft overhead just makes it all the harder to get people to accept the need for austerity.
I have no idea how former Prime Minister Gordon Brown would have reacted to this threat if he had won re-election, because I never once heard him or his Chancellor of the Exchequer (or indeed Vince Cable) asked the $64-billion-dollar question: what if the markets wonât wait a year or two till you decide the time is right to deal with the deficit?
After all, the Greeks no doubt feel they should be given a year or two more, as do the Spanish and Portuguese governments, and no doubt the Irish too. What if the price of UK gilts drops precipitously, driving yields up to 6 percent, 7 percent, 8 percent . . . ?
This question may yet be directed at Business Secretary Vince Cable if he rebels over the fairly modest scale of the cuts proposed by the new government, as some commentators predict he will.
The optimist in me tends to the view that we may end up with a better outcome for the economy than we could have hoped for from the Tory majority government that looked a safe bet until a few months ago.
Ruling alone, dealing with the deficit would yet again have saddled the Tories with the reputation of being the uncaring party, just as it did the last time they were left to clear up the mess at the end of the 1970s, when they at least started with the advantage that, with garbage piling up in the streets and the roads left ungritted through a bitter winter, most people were ready for drastic measures.
This time around, the notoriously nice LibDems will be in the stocks alongside the Tories.
One dangerous hangover from the coalitionâs birth is that a majority of Labour and of LibDems have been allowed to cling to one illusion too many â the dream of a coalition of the self-styled âprogressiveâ forces (using the word in the sense that the ostrich is a progressive bird).
This was always a non-starter, invented, understandably enough, in order to give the LibDems some negotiating room (nice try, Nick Clegg). But given the parliamentary arithmetic, a losersâ coalition would have had to rely on the nationalists for support, which would only have been available at the price of exempting them from cuts in the precious public sector jobs that make up such a large proportion of their respective economies.
Hence the rainbow coalition would have been forced to concentrate public sector cuts in England, a deal which would hardly go down very well with the English electorate, especially if they were being asked at the same time to swallow rises in taxes, prescription charges and so forth.
At the same time, you can bet that Peter Mandelson and Co. would have made absolutely sure that their coalition partners were well drenched in the blood spilt in the public sector cuts. In short, Labour had little to lose by a coalition â but it would have been suicide for the LibDems.
Coalition with the Tories on the other hand offers the LibDem party a major step up from the Labour franchise operation to which its leaders have reduced it over the past 20 years â all of which raises the question of why, under these circumstances, Prime Minister David Cameron felt the need to make any serious concessions at all.
The Tories had already done more than enough to show that they were serious about wanting a stable responsible government. The ball was clearly in the LibDemsâ court, and they had every reason to worry that the longer the process was dragged out, the more the public would be disgusted by the wheeling and dealing â and the more they would be drawn to the conclusion: stick to First-Past-the-Post.
Offering Nick Clegg the Deputy Leadership cost the Tories nothing (though it is something of a mystery why anyone should want a job whose previous incumbents were John Prescott and Harriet Harman), and abandoning the rise in the inheritance tax threshold was probably sensible in the current situation anyway.
Fixed term parliaments is one of those reforms, like Freedom of Information, which looked unlikely ever to be implemented, so I am certainly not going to look that particular gift horse in the mouth – but what happened to the Tory promise to reduce the number of MPs?
More importantly, with an election fixed for 5 years from now, delaying 2 billion pounds or more of expenditure cuts is a concession the PM may come to regret.
As the details of the deal become clearer, it seems more and more plain why Cameron and Clegg got on so well.
They are both toffs, only too well aware that they themselves havenât earned their lifestyle and in that sense donât deserve it.
Saddling the middle class with the burden of their bad conscience may or may not be wise politics, but it is certainly not wise economics at a time when we need to do everything possible to encourage the virtues of hard work and thrift.
To use yet another nuptial metaphor, the lovers couldnât wait to set up home on their own, so as to escape from their respective families. Clegg apparently thinks his family is too principled for its own good, while Cameron believes his is too hard-hearted for its own good.
Like many a young couple before them, theyâll learn soon enough â once the bills start piling up.