Budget blues spell danger for Tories

Do you really trust this man?

Tomorrow will see George Osborne unveil his second budget since coming to office almost a year ago and its clear that the wheels are falling off this reckless strategy of cutting too far and too fast.

On deficit reduction the chancellor has shown leadership of sorts, but on growth, he has been absent from the debate.

The biggest test of the budget is whether it is good for growth, and the biggest risk to recovery is complacency about the ability of free markets alone to deliver recovery.

We have seen too much complacency from Tories on growth. The recent budget meeting on Medway Council saw Tories salivating at the prospect of slashing local services for people. Now they appear in abject denial about a cumulative £30m cut to local services which is somehow a positive development.

A bit of honesty though is too much to expect from Tories worried about an electoral slap in the face.

Anyway, if Gideon is listening, the data should have been his wake-up call. GDP figures for the last quarter of 2010 were alarming, showing the economy contracted by 0.6%. The government blamed snow, but it snowed in Germany and the US too, and they still grew.

The second wake up call should have been last week’s unemployment numbers, the highest in 17 years. Combined with falling house prices, and today’s figures showing inflation rising to 4.4 per cent, it is hardly surprising the government’s independent Office of Budget Responsibility have consistently downgraded their 2011 growth forecast at every chance, from an initial estimate of 2.6%, to 2.1% now, likely to be downgraded to 1.8% tomorrow.

Plan A is not going according to plan. These facts should be the wake up call the government needs to rethink.

Mr Osborne’s fall-back – his implicit Plan B – was looser monetary policy. But with the MPC currently split over whether to increase rates, and a consensus emerging on a rate rise in the late spring or early summer, Plan B is looking as forlorn as Plan A.

Jonathan Portes, writing in the Financial Times recently, said this

“…relies on an odd view of market psychology, one that says markets have more confidence in governments that never adjust policy, even when it is sensible…History suggests the opposite: that the real hit to credibility comes from sticking to unsustainable policies.”

Now is the time for a credible and substantial growth strategy.

First and foremost, we need to begin building the Britain of the future. In particular, what we do need is action to help hard-pressed families with the rising cost of living and removing barriers to growth.

This should include Ed Miliband and Ed Balls’s proposals for a £2 billion bank bonus tax to create 110,000 new jobs:

• The provision of a £1.2bn to fund the construction of more than 25,000 homes;

• A £600 million fund for youth jobs; and

• A £200m boost for the oversubscribed Regional Growth Fund.

But we also need to see the government publish the still outstanding green paper on growth and we need it quickly.

The public recognise the need for austerity, but they also want to know the government have learnt the lessons from the crisis, and that they are determined to build a fairer and more sustainable economic future for Britain.

Britain could be a world leader in the jobs and technologies of the future, but only if the government supports growth There is no better place or time to start on that path than tomorrow’s Budget;. let’s hope the chancellor seizes that opportunity.

I doubt he will