– Hugo Dixon is a Reuters Breakingviews columnist. The opinions expressed are his own –
The new UK coalition deserves 7 out of 10. The pact between the Conservative and Liberal Democrat parties, led by David Cameron as the new prime minister, seems determined to address the country’s most important problem — the deficit. This is vital given that the euro zone debt crisis could still prove contagious. It should also be positive for sterling.
Some good ideas are also emerging on tax and spending. But other plans for tax and banks look odd — and there are doubts about whether these bedfellows will be able to work together. After all, Britain has not had a coalition government since World War Two.
Some will be disappointed that George Osborne, who has not been impressive as the Tories’ finance spokesman, will be Chancellor of the Exchequer. But the overall policy stance looks promising. The new government clearly sees dealing with the mess in the public finances as its top priority. The LibDems, led by Nick Clegg, have signed up to Cameron’s plan to find 6 billion pounds in efficiency savings in the current financial year.
This is, of course, only a pin prick given that the deficit is expected to top 160 billion pounds, or 11 percent of GDP. But it is reinforced by several other measures: an as-yet vague promise to significantly accelerate action on borrowing; an emergency budget within 50 days; and plans to involve both the Bank of England and a new Office of Budget Responsibility in vetting budget plans. Asking a bunch of technocrats for advice could give the new government the necessary alibi to implement more savage cuts than the Tories indicated during the election campaign.