“UK markets have slumped as the uncertain outcome of the general election unsettles investors”. That’s the general tenor of mainstream press commentary today.
It’s wrong. As our economics writer points out today, gilts are no lower today than they were a month ago. Yes, shares are down – but not by as much as they are in other countries. Sterling might have fallen against the dollar, but it’s still comparatively high against the euro. Much as it might irk our self-important politicians to hear it, the rest of the investing world isn’t that interested in their partisan bickering.
Of course, that might change if their ineptitude lands us in a pickle as bad as Greece’s. Could it happen? With immaculate timing, a report from economics consultancy Lombard Street Research* arrived on my desk this week, discussing the lessons from a century of spending cuts.
It explains that the single biggest round of cutbacks to UK public expenditure in modern times was that outlined by a committee established by Lloyd George in 1921 and chaired by Sir Eric Geddes. It became know as the Geddes Axe because of the zeal with which its members (aside from Sir Eric, they were all businessmen, not politicians) went about identifying cutbacks.
Sir Eric proposed cuts of £100m, but the Cabinet only had the guts to sanction £64m of that in the 1922 Budget. They weren’t popular. Later that year, the coalition government of Lloyd George collapsed. Several subsequent governments that found themselves needing to cut spending suffered a similar fate – most obviously, Ramsay Macdonalds and Jim Callahan’s.
Mindful that cutting spending hard is the electoral equivalent of signing your own death warrant, can politicians be trusted to do it properly? We’ll soon find out.