Greece today, Britain tomorrow
If you want to know what Britain will look like after the election, look at Greece now. Or if that seems too far away, look at Ireland. The politicians must now introduce the austerity measures that they were too scared to mention during their campaigning.
There is no doubt Britain has to tighten its belt severely. The debate over whether to do it slowly or quickly disguised the extent to which it will have to be done and the leaders of both main parties had every reason to avoid telling the truth – or challenging each other to do so - because they would lose votes.
But the country’s budget deficit has to be eliminated and that will be painful. The UK is spending £113 for every £100 it earns. Cutting spending back to £100 will hurt but we ought to be reducing it to, say, £90 for several years to pay off the debt accumulated during the spending spree.
Alistair Darling’s March budget outlined plans for halving the deficit over four years, but that does not even return us to a balanced budget, nevermind allow debt repayment. It means the debt is still piling up, simply more slowly. It is as if a profligate credit card user had vowed to run up smaller bills when they ought to be cutting up the card and paying-off the balance.
The Greek government has a similar problem, but having run out of borrowing power and without a currency to devalue, has had to agree an austerity programme that includes later retirement, lower pensions, wage cuts and higher taxes. The people have yet to agree the plan however and are rioting against it. Ireland has accepted a similarly severe programme with less opposition.
Britain needs to maul its public spending but while that reduces the burden on the state, it diminishes the total economy, leading to less consumption and an impact on the private sector. While both parties skirted the question of increasing value added tax during their campaigns, that remains an easy source of revenue for the Treasury, but it would hit sales of a wide range of services and goods. The prospects for British business look bleak.
The UK may avoid the riots – though remember the poll tax – but it must take tough action to balance its books. Greece is a useful example for the new government of what has to be done. If our measures are slightly less austere, then ministers can tell the electorate they are getting off lightly. That’s politics.
