The coalition must not lose its nerve

The local election results will put pressure on the government to change its financial strategy, but to do so would produce no immediate benefits and may well spook the lenders on whom the UK economy depends. The cuts in government spending (or, rather, reductions in the rate at which the deficit and borrowing are increasing) have been decided upon. While these are more front-end loaded than Liberal Democrats and Labour would have wanted (the "too fast" of the Labour mantra), they have been set in train and it is impossible to put the genie back in the bottle. It is worth repeating that the cuts planned by Labour in 2010, those in the Liberal Democrats' manifesto, and what the coalition has actually implemented are all in the same region. 

The UK government should at least wait to see what growth measures the new French president, to be elected on Sunday, proposes and what the international financial community's response to them is. The preliminary verdict is adverse. 

I agree that VAT should be cut. Being a regressive tax, it should be cut when we can afford it. But cutting it now would have the short-term effect of sucking in imports, worsening our already enormous trade gap, and a temporary cut would be more trouble to small business than it was worth, as Labour's experiment in 2009 showed.

The point is that the recovery is under way. It may not seem like that to the people who have lost their jobs in the wave of cuts scheduled in the aftermath of the 2008 financial melt-down, but full-time employment is going up, exports are going up and the mood of many industry leaders interviewed after the March GDP figures were released is remarkably upbeat. There are even signs on the high street that confidence is returning. Round here at least the number of boarded-up shops is reducing.

The recovery is slow and the check caused by the attack on eurozone countries slowed it up further, but it is there. There are also measures in the UK programme which will stimulate the domestic economy, like the railway electrification programme, but these will take time to work through.

There is just one thing that the government can do which would have an almost immediate effect: force banks to increase their lending to small businesses, and to reduce the punitive interest rate on business loans.