The Background

Any assessment of the coalition budget can only be made in the context of the present international economic climate. The main factors are:
1. The structure of internatioal trade is unstable because some countries, notably China and Germany, have regularly run large export surpluses. This cannot continue indefinitely, since other countries have been having parallel deficits, and they too cannot continue for long.
2. We are still suffering from the aftermath of asset bubbles, notably the housing bubble, which was worst in the US, Britain and Spain.
3. The banking collapses through excessive and unwise trading, requiring expensive bailouts.
4. A widespread belief in the efficiency of markets, which were in effect self regulating, and which allowed the above failures to develop.

Britain's position in the world wide crisis

Britain was badly hit because of our high dependence on the financial sector to provide exports and tax income for the government. Before the recession Britain's national debt was on the low side, but now there is a big hole in the government's budget adding to the national debt. This budget deficit has to be corrected. So the question is how to do it whilst the economy remains in a very weak state.

The solution?

No political party set out the details about how they would cut the deficit. Labour planned to do it over a number of years, with the aim of getting economic growth back to a normal rate and giving exports a chance to expand. These policies would have taken some of the burden off tax increases and budget cuts.
The Coalition now say this is not enough. They blame "the market" which they say demands more. If anything, the outlook since the election looks poorer. Yet the coalition have piled on the cuts, somewhat brought forward the timing, and have thus reduced the prospects for growth and increased the certainty of high and damaging unemployment. They have a touching faith that the private sector will ride to their rescue. We think that very unlikely, and that unless policies are reversed we will suffer a long depression, albeit not as deep as the 1930s.

PS. The New York Times 30th June have an article which reads:
"The world's rich countries are now conducting a dangerous experiment; they are repeating an economic policy out of the 1930s - starting to cut spending and raise taxes before a recovery is assured - and hoping today's situation is different enough to assure a different outcome."