As election looms, parties must keep national interest at heart

YESTERDAY’S announcement that the Budget will be held on Wednesday 24 March firmly anchors election date expectations on May 6. The news was greeted by government and opposition alike as the effective launch of what will be a heated and bruising election campaign.

Any doubts on this score were dispelled by the voluble exchanges in Prime Minister’s Question Time, David Cameron’s reference to the CND-wearing badges of Labour in the 1980s countered by the Prime Minister’s repeated reference (in reply to questions on army equipment) to the “non-dom” Tory peer and deputy chairman Lord Ashcroft.

So much for the chances of an enlightening debate on defence equipment procurement.

The Budget should help to focus national attention on the biggest issue troubling voters: the parlous state of Britain’s economy, the evident fragility of recovery and the government’s massive deficit and debt pile. The past two days alone have brought forceful reminders of how close we are to a “double dip” relapse back into recession: a traded goods deficit in January climbing to 8 billion, where an export-led boom should have been, and figures yesterday showing a sharp 0.9 per cent drop in January manufacturing output. These pointers will have been influenced by the severe and prolonged wintry conditions. But a strong snap back will be required over February and March if we are to see any recovery momentum.

Troubling as this background to the Budget is, it brings some support for the government’s reluctance to embark immediately on spending cuts. These figures will be cited in support of the view that this is not the right time to be embarking on public expenditure reductions that could snuff out what little recovery there has been. But Alistair Darling will need to furnish more details than hitherto of how he intends to halve the deficit over four years.

Mr Darling also needs to attend to measures to boost business investment and growth. Hints have been dropped that this is precisely what he intends to do, with incentives targeted at the energy, renewables (offshore wind) and bioscience sectors. And he has a little money to play with: specifically, the larger than expected 2.5 billion from the bank bonus tax, savings resulting from the rise in unemployment not being as severe as the government forecast, and hefty rises in drink taxes.

All this will put the Conservatives under pressure to be clear as to what and how they mean to cut in a promised post-election Budget and how they will provide incentives for business equal to or better than those proposed by Labour.

And the political class generally will be under pressure to act responsibly if the outcome is, as looks likely to be, a hung parliament. Overseas investors may become nervous about sterling and the government debt market. While our Triple A rating might not be in immediate peril, any flight out of sterling could force market interest rates up to a point where recovery is indeed in jeopardy. Not just the government, but the opposition, needs to calm the rhetoric.