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In today’s Independent, Hamish McRae wrote a truly interesting article on the the emergency budget introduced by the Irish Republic which were announced on the same day as the disgraceful PBR statement given by Alistair Darling to the Commons last week.

It is well worth reading but to give a flavour, the following quote from it: “But the biggest lesson surely is that if a country has to impose austerity, it should do so swiftly.” http://www.independent.co.uk/opinion/commentators/hamish-mcrae/hamish-mcrae-we-have-a-lot-to-learn-from-ireland-1841891.html

Thinking it Through

This is an excellent article but of course there are major differences between The Republic and the UK not least of which is the former being part of the Eurozone has meant that the Irish Government had little choice or freedom of action. Oddly from a political point of view, this is helpful because most electorates will unite behind their Government if the imposition is seen due to “External Forces” and therefore, outside of the Government’s control.

Unfortunately in the UK, we do not have that same possibility. Whilst it is true that Brown and Labour were not responsible for the collapse of confidence in the Global Markets that led to the “Crisis”, they were totally responsible for the deplorable state of the Public Finances due to their blind profligacy which led to and increase in the public payroll by – what 750,000 ? On top of this there is an underlying “structural deficit” of £60-70bn a year, the gap between tax receipts in good times and what is being spent by government – twice the Defence Budget.

Brown realised this very early on so like a child he was ever pointing to the “American Sub Prime” as the cause of it all when in reality and as history will likely judge, Sub Prime was a symptom of a Global Economy that had become a runaway train where fiscal prudence had long been discarded on the altar of permanent economic growth. The Labour Government, who’s domestic spending policies were set by Brown as Chancellor for 10 years, were totally out of control with no checks and balances on our most crucial industry, Financial Services.

The Actions Needed

It is likely that the British State needs to make a rapid cut in public spending by 15-20 % and there are only three tools available, increase taxes dramatically, cut public sector wages and the slowest of them all, cut capital expenditure.

As tax receipts have fallen considerably, it is likely inevitable that there will have to be some fairly immediate tax hikes following the General Election but it cannot be the total solution because higher taxation will harm economic growth. Lowering taxes might well be better but in a more subtle way such as raising tax thresholds to take the lower paid out of both tax and NIC whilst at the same time, squeezing the tax bands whilst keeping rates the same.

Capital expenditure is the most difficult to get any immediate results from because they will take on average a minimum of two years to kick in and could be a lot longer. Dumping ID Cards and various other such grandiose follies, is immediate but as the cock handed handling of Defence Procurement shows only too well, it can often take far longer.

Perhaps the most effective approach is a combination of cutting public sector jobs, job sharing and cuts in salary simply because wages are the highest single element in the cost. Of course what comes with that are cuts in “services” and there can be no sacred cows here, Health and Education cannot be excluded, in fact, no one can.

The Political Problem

The big problem with all this is that it is totally political in the sense that the politicians have to be prepared to take on a very spoilt electorate on who will resist the consequences bitterly and are not yet ready to face reality. The proof of this being that the Brown message of ‘soft landings’ and ‘growing out of recession’ has a Siren Voice for the electorate as the recent narrowing of the polls show, they fear the harsh reality intimated by George Osborne.

Labour has runaway from taking the actions required, their only desire left being to minimise the size of their electoral defeat, make things as difficult as they can for an incoming Cameron Government and the Country can go to Hell for all they care. What might be interesting is and given that Brown has acquired an Albatross around his neck since becoming PM, what if there is a major external event before the election that makes people stop wanting to believe in the Tooth Fairy ? That could hand Cameron the means to really tackle the issue head on, be ruthless and set the Country ready for future growth.

Conclusion

This Country has a number of major assets that are impossible to put a price on but make it an attractive place for people all over the World to invest and do business in, it is politically stable and has a ‘business attitude’. There are two key attributes that make any nation “Great” and that is the combination of commercial and military potential, if the people of the UK want to retain this and the potentially prosperous future it may bring, then some short sharp medicine is required to rebalance the economy, the Brown way will not work.

Everyone needs a bit of luck. The story of Marshall Ney recommending a young cavalry officer for promotion to Napoleon is still a classic. Detailing all this young man’s achievements, Napoleon listened, nodded and then said: “Yes Ney but tell me, is he lucky ?”

But luck alone is not enough, you must also have the courage to seize the chances offered. Brown was given a honeymoon period by the electorate but he wasted it through dithering and cowardice over the Autumn 2007 election he should have called and it has all been downhill for him and Labour since then. Brown has failed miserably at every level, he lacks both the courage and humility the situation demands. So how will David Cameron shape up ? We don’t really know yet but he is now the only game left in Town so, I guess we will find out.