How important is the Budget on Wednesday?

The CBI says the "Worst of the Recession is over". This will comfort many people, but is also the starting block for a week which will see the country discuss fiscal tightening, public spending cuts, the value of new taxes - all of which will be a grand way of saying: "how painful will rescuing the economy actually be?"

 

Today the Chancellor has put a number on it.  After nationalising the banks, the country won't be able to profit from selling them again in the upturn - in fact Alistair Darling has admitted we will probably lose £60bn on the deal.  Alan Sugar would not be happy.

 

Behind this, you can see some clever political communications.  The Government's opposition has been trying to portray the country as a bankrupt result of economic mismanagement, about to embark on a historically damaging turn to the IMF for help.  Their basis for this is the hundreds and hundreds of billions of pounds used to bail out the banks and guarantee loans.

 

Some estimate 200-300 billion (!) has been spent.  Of course, a lot of this is has bought shares and forms only guarantees - the actual amount lost is a lot less.

 

So Wednesday's Budget will have to lay out the groundrules for how we are going to spend less and raise more in taxes to cover only the £60bn hole.

 

See how that works - you're actually grateful we've only lost £60bn!

 

Anyway, back to the economy....

 

Context is crucial, and in the coming months we will see all those special initiatives the Government has been promising coming to life.  The lifeblood of cash should start flowing through the veins of the business community very soon, and businesses will start to see a growing sense of confidence.

 

Similarly at a breakfast with the Governor of the Bank of England recently, he pointed out that there is a natural uptick in manufacturing after the initial panic.  Manufacturing has seen sales fall off a cliff, and has responded by halting production and selling off stock.  However, eventually this will be sold, and it will be necessary to start up the production line again.  Whatever the state of the economy at this point, there will be a boost in confidence as people start being active again.

 

For Alistair Darling, his challenge now is to juggle the two mammoth tasks of tackling the problem of the strength of our economy, and not destroying growing optimism with the solution.

 

SH