Cautious Economic Optimism

The news (being reported all over) that last month saw a significantly lower public borrowing amount than had been forecast is good news in itself, but it is just one month in isolation. It is said that increased tax receipts have been largely responsible for the better-than-expected outcome for July 2010. It is still an additional £3·8 billion on the national debt relative to just one month before, though, and that should not be forgotten or glossed over.

The year-to-date borrowing has also ended up lower than last year, at £44·9 billion as against £47·5 billion for the same seven-month period in 2009. This too is welcome news, and perhaps indicates that the brakes being applied to the runaway train that was Britain's national debt under Labour are starting to have some effect, though obviously it's still early days.

As the more comprehensive and authoritative analyses of our situation and prospects have explained, Chancellor George Osborne is having to tread a very narrow and careful path for the time being, with dangers on both sides of that path. Bringing down the deficit will be a slow process, though it is hoped to more-or-less eliminate the annual deficit with five years.

I'm not sure that will be achieved by then, though it is possible; but it should be well on the way by 2015 and with the end to the worsening in sight.

Once the brakes have done their work, then will come the process of reversal: bringing the overall national down in a mirror-image graph of what happened up until that point.

Dr Eamonn Butler does a useful job here of outlining what some term Austrian Economics, and the truths of the Osborne approach as against the sheer dishonesty (and/or economic illiteracy) of those who are opposing public spending restraints. City Unslicker reminds us that Alistair Darling urged an approach akin to Osborne's but was overridden by Brown and Balls.

It will probably take a good two parliamentary terms (and quite possibly the best part of a third as well) to bring our overall debt down to something manageable for the long-term, and the crisis to an end. My hope is that a more gentle pressure can then be applied in the future, but some pressure will be needed permanently, to ensure that we never again go down the road we are now travelling.

Of course, a vital part of that will be ensuring that Labour do not get back into power, however tempting it might be to give them another chance. They just have no idea about, or interest in, how economics work. This generation's lessons must be passed on to those who will be tomorrow's voters!

UPDATE 24 August: Claire Perry shows how the Coalition Government's approach has proved to be the right one, and the reasons why.