Budgets

There is a timely piece by Andy McSmith in The Independent on the Thatcher/Howe budget of 1981. This "is firmly embedded in the mythology of the Conservative Party," he writes, "Margaret Thatcher believed the three great tests of her mettle that defined her as a prime minister were the miners' strike, the Falklands War, and the 1981 Budget." McSmith opines that: "Osborne is hoping that the 2010 autumn statement will do for his political reputation what the 1981 Budget did for Thatcher's and Howe's." There is a coincidence in the amount - £4bn - which Howe aimed to take out of the economy. Of course, £4bn was worth rather more then than it is now, so the effect was greater.

McSmith sketches in some of the background: " The Labour government had, at great political cost, pulled inflation down into single figures from the peak it reached in the mid-1970s." (One must not forget the major contribution in restoring financial stability, at much greater political cost, by the Liberals.) "The incoming Tory government had ramped it back above 20 per cent by putting up the most basic costs such as heating bills and rent and by awarding public sector workers a 25 per cent pay rise to avoid another 'winter of discontent'." Another significant factor, which McSmith does not mention, was an early decision by Chancellor Howe to "follow the market" with bank rate rises and consequently produce a spike in the sterling/dollar rate. This combination cut a swathe through British industry - indigenous machine-tool manufacture was virtually wiped out overnight - in turn signalling the reorientation of UK trade towards financial and intellectual products and away from traditional industry.

Thatcher and Howe hoped to have killed off Keynesianism in its native land. The fact that the Bank of England is pumping money back into the banks (in the form of "monetary easing") shows that it has returned in another form. Cameron and Osborne aspire to the re-balancing of the UK economy so that we are not so dependent on the City of London. These are two breaks with Thatcherism. So are those leaks about slashing the welfare budget merely red meat being thrown to the "dries" to keep them docile, or is this cabinet of millionaires really so insensitive to the reality of life in areas of high unemployment as to carry them out? Next month's spending review will tell us.