The spending cuts and tax rises after the election will be so severe that the party which implements them will be thrown out of power for a generation, the Governor of the Bank of England has warned.
Mervyn King is reported to have made his prediction about the public reaction to the austerity package in a meeting with the American economist David Hale, who told Australia’s ABC TV network: “I saw the Governor of the Bank of England last week when I was in London and he told me that whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be.”
The Bank would not comment on his remarks at what was a private meeting but sources emphasised that Mr King was not intervening in the election. It is understood that the two menmet in earlyMarch, not last week as Mr Hale said.
The Governor has repeatedly called for tough action to tackle the public finance deficit, estimated at £163bn in the current financial year. But in public he has stuck to the economics and avoided the politics of the issue.
Last November he said: “It’s up to governments to give a clear lead in setting out a clear and credible strategy.” Later that month he told the Treasury Select Committee: “We came into this crisis with fiscal policy along a path that was not itself sustainable and a correction was needed. There will certainly need to be a plan for the lifetime of the next parliament, contingent upon the state of the economy, to show how those deficits will be brought down if the economy recovers to reach levels of deficits below those shown in the Budget figures.” He added that “the plan needs to be credible, not just a broad-based statement of intent”.
Mr King’s reported remarks emerged after the Institute for Fiscal Studies (IFS), the respected independent think-tank, accused all the main parties of failing to come clean over the depth of the cuts needed after the election. The Institute said that Labour or Liberal Democrat proposals would mean cuts on a scale not seen since the 1970s when Denis Healey, the Chancellor at the time, called in the International Monetary Fund. Under Tory plans, the IFS said the squeeze would be the most severe since the Second World War.
The Governor’s comments echoed those of some Tory politicians who, with hindsight, said it would have been better for their party to have lost the 1992 election. Only months after the Tories’ fourth successive win, the pound was forced out of the European exchange rate mechanism on Black Wednesday and the party lost its reputation for economic competence.
Trade unions are already mobilising against the inevitable spending curbs. The RMT rail union is organising anticuts rallies over the May Day weekend in Belfast, London and the regions.
Bob Crow, its general secretary, warned yesterday that Britain could face street protests by public sector unions like those seen in Greece. He said: “Working men and women, and the public services they deliver, should not have to pick up a £50bn bill for the bankers bailout while the City spivs and the bankers are back on board the bonus gravy train. There is no question that there will be widespread industrial action and public resistance to the savage cuts that are being cooked up behind closed doors.”
The RMT is threatening a national rail strike after the election, unless agreement is reached in talks at the conciliation service, Acas. Industrial action is also threatened on the London Underground over job losses.
Mr Crow said: “In Greece, there are thousands of workers out on the streets protesting over the collapse of their economy and the impact on working men and women who are taking the hit full-on for the failures of the political class, the bankers and the European super state.
“In the UK, we cannot afford to wait for the politicians to unleash a £50bnslash-and-burn attack on our public services, our jobs and our living standards after 6 May. We have to start the fightback now and that means concerted action by trade unions to resist the all-out assault that we know is coming.” The Public and Commercial Services Union is threatening to relaunch strikes which began in March involving 200,000 civil servants after the action was suspended for the election. A spokesman said: “All the main parties are wielding the axe, without really saying where it will fall, but we fundamentally reject the political consensus that massive cuts in public spending will be necessary after the election. If the cuts are anything like what is being suggested, industrial action by the unions is not only likely, it’s inevitable.”