Grahame Smith: Structural problems still need addressed amid deep recession

THE Budget unveiled by the Chancellor, Alistair Darling, this week may have been unspectacular but at least it was coherent and largely consistent with the UK government's three main economic priorities at this time: avoiding a double dip recession (or worse), tackling the deficit and changing the shape of the economy.

The Chancellor is right to argue that immediate cuts risk plunging the economy directly back into recession.

It is entirely proper to contrast the government's approach with that of an opposition who appear shockingly complacent about the fate of the current generation of young people.

The extension of the Future Jobs Fund which Mr Darling announced is one of the most important initiatives contained in Budget 2010.

However, whilst the Budget maintains the government's reasonably solid performance on jobs over the past 18 months – unemployment has risen to nothing like the levels we anticipated given the fall in output – it is very unlikely to provoke the kind of transformational change in the economy that Scotland's trade unions desire.

Yes, the Green Investment Fund and new growth capital fund for fast growing firms represent a welcome if long overdue acknowledgement of the UK financial sector's failure to support long-term growth through the provision of committed capital.

The issue of development funding for UK businesses predates the recession.

These new funds will boost job-related investment, hasten the shift to a low-carbon economy and produce a yield for the economy far exceeding the public money invested.

However, they are not of sufficient scale to overcome one of the UK economy's most serious structural problems.

Many will continue to look with envy at the support now being provided in France through the 20bn Fonds Strategique D'Investissiment.

New lending targets will be welcomed by all those who have witnessed the calibrated mendacity of banking representatives as they argued before parliamentary committees that low rates of lending were simply a function of low demand.

The STUC is, however, very disappointed that Budget 2010 contained little to increase the pace of banking reform.

Co-ordinated international action is preferable but cannot be used forever as an excuse for inaction.

A banking levy, even if introduced globally, will only institutionalise moral hazard and further embed the City's entitlement culture.

Rather, we need to see swift and effective action on structural reform, a civil society voice introduced to the regulatory authorities, effective policing of (not necessarily higher) capital requirements and an overhaul of corporate governance.

As with every Budget, there may well be much devil in the detail. This applies particularly to efficiency savings across government.

The Chancellor should also have been mindful of the substantial drop in demand that will result from real-terms wage cuts for public servants.

Combined with ongoing household, firm and state deleveraging, the impact on a fragile economy will be severe.

I note the initial reaction from the opposition and employer lobby focused very heavily on the failure to produce a credible plan for reducing the deficit.

What then was the reaction of the markets, supposedly standing ready to visit their wrath on a profligate Chancellor? Er … benign indifference apparently.

• Grahame Smith is general secretary of the Scottish Trades Union Congress