Praise where praise is due. Apparently the clueless coup had its moments. Lord M and Mr D seem to have wrestled the driving wheel away from Mr Balls. According to briefing “Tory cuts versus Labour investment” is no longer the dish of the day. We are all cutters now.
This morning Mr Darling begins the long task of trying to win back the confidence of the money lenders. When you need to borrow one quarter of all you are spending, day in, day out, you do need to heed their views. The Bank this week confirmed that it would not be printing any more money. They only have around £7 billion of firepower left out of the £200 billion they agreed to print to see the government through the worst of the downturn. In recent weeks the Bank has been buying under half the amount of debt the government needs to borrow. We can see that from the increase in the interest rate the government now has to offer to raise its money.As readers of this site will know, we should expect further increases in interest rates to follow as the government shifts from printing some to borrowing the lot.
If the government is serious about helping recovery it needs to put through spending cuts now. Lord M has been showing the way with the Universities – not popular but I guess realistic. I would myself prefer it if they would stop recruiting from outside to all these non jobs and got on with the task of reforming and simplifying public services.
Lord M has also allowed people to write that he wishes to reassure entrepreneurs and rich foreign investors that they are still welcome here. Labour, he says, is not about to squeeze them until the pips squeak. There is still enough New Labour to recognise the need to keep and encourage entrerprise. If that is true then they should cancel the 50p tax rate, as the quickest way to send a message to the world community that they do still want a UK open for business.
We are told today there will be a Labour budget before the election. That will make interesting reading. Of course it will contain the biggest spending cuts for 20 years. To create a sustainable recovery it needs to contain the biggest spending cuts for more than 70 years, such is the extent of the crisis in public finances. If they do not cut soon, interest rates will carry on upwards, damaging what passes for a private sector recovery so far.