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Turbulent times in Westminster, but worse is yet to come

David Woods , 22 Jun 2009

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Political news has been reading recently like the script of bad soap opera - financial irregularities, ludicrous expenses claims, ministerial resignations (or sackings), leadership non-challenges, the Speaker's forced resignation, dramatic government losses in the local elections, and even Alan Sugar joining the government.

But behind the sensationalist headlines, a real debate about actual policy is beginning to heat up, and as we get closer to next year's general election, it will be the key dividing line between Labour and the Conservatives. The debate is essentially about which party would cut spending more than the other. This is by no means a clear cut issue, as regardless of which party wins next year, spending cuts are inevitable. In reality, the argument is more about who would cut what, where cuts would fall, and when?

The debate was brought sharply into focus last week, as Shadow Health Secretary Andrew Lansley caused a major headache for David Cameron by stating that under a Conservative government only the Department of Health would be spared budget cuts. According to Lansley, all other departments would see their budgets slashed by 10% from 2011 onwards.  

In the furore that followed, the Conservatives claimed that Lansley was simply using the government's own projected spending figures with adjustments to protect health spending - inline with Conservative policy.  Responding, Ed Balls, the Children's Secretary (and wannabe Chancellor), indicated that the government would actually seek to increase health and education spending after 2011.  Wildly unrealistic, he went much further than the real Chancellor - Alistair Darling - is reportedly comfortable with. With the next Spending Review scheduled for just before the general election, Darling is desperate to lower expectations to avoid a huge electoral backlash.

Amid the confusion and political point scoring, the facts speak for themselves.  Figures released from the Office for National Statistics this week show that government borrowing over the 09/10 financial year is likely to far exceed the £175bn predicted by Alistair Darling. Breaking the already staggering prediction of debt at 12% of GDP.  Meanwhile, unemployment hit 2.26 million this week, a 12 year high. British Airways have even resorted to asking staff to work without pay. The unemployment crisis is causing increased pressure on government budgets as benefits and tax credits are needed to make up the shortfall in incomes.

Even more worryingly for employers, the proportion of 16- to 18-year-olds not in education, employment or training (NEETs in official jargon) is now more than one in ten. With young men twice as likely to be unemployed than young women, fears are increasing of a ‘lost generation' of endemic joblessness, similar to that which occurred during the peak of the recession in the late 1980s. Partly this is due to lack of suitable jobs for graduates, who upon leaving university are forced to accept lower paid work, and are therefore damaging the job prospects for young people without qualifications even more. A generation of unemployable youth would tear apart our social fabric and destroy our prospects for economic recovery.

So, just at the time when we need to be investing in skills and training opportunities for the nation's youth, budgets will have to be dramatically slashed in order to repay government debt. There are already fears that the Learning and Skills Council is running out of funding for places on apprenticeship schemes, making a mockery of government plans to almost double the current availability of apprenticeships to 400,000 by 2020.

Therein lies the dilemma facing the next government. Whichever party wins next year will have to find the right balance between paying off our massive debt while also funding the investment that is sorely needed to help the UK out of recession. With borrowing at record levels, expense claims dominating media interest, declining tax revenues undermining essential spending plans and tax rises an electoral taboo, it will be some time before any government has the courage to be honest about the painful steps that are needed to rescue the economy.

The media needs to abandon its obsession with frivolous embarrassment of MPs and ask the real policy questions. That said, did you hear that Lembit Opik claimed for a giant wig and that Jeremy Hunt sought reimbursement for a 1p phone bill?

Marc Woolfson is an account director at Westminster Advisers

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