Slowly but surely Britain is turning into a "conflict economy". It is what happens when the national cake stops growing and people start fighting to protect their share – more strikes and strife, in other words. Public vs private sector; bosses vs unions; Scotland vs England; resentment of immigrants. Slow growth means lower living standards for all, though Mr Darling has made sure that the rich will see their living standards fall most. Average British living standards may end up little higher in 2015 than they were in 2005, while the wealthiest might well see a 10 per cent cut. That is pretty unprecedented. Mr Darling's matter-of-fact delivery should not blind us to the potentially radical effect of his "Robin Hood" Budget.
How will we feel the squeeze? First, through sluggish wage growth. Factoring in inflation, wages have been falling behind prices for many months, restrained by fear of unemployment. The effect is most dramatic in the private sector, where pay freezes are common and strikes extremely rare. In the public sector things have been more generous and the unions more willing to resist assaults. But all the parties agree on the need to limit public pay, cut spending and trim public sector pensions. Public sector workers, in other words, will soon see their wages and benefits subject to the same harsh disciplines that their private sector counterparts have lived through for two years.
Second, we will see taxes rise. Again, this is especially true of the rich. A stereotypical banker will be hit by the new 50p rate, the bonus tax, limits on his pension pot, the rise in stamp duty on mansions, and steeper taxes on expensive cars. His inheritance (in either direction) will be taxed more heavily. But the rest of the nation will also be hit by higher national insurance, frozen thresholds and the usual increases in duty. If Vat does rise – despite the politicians' promises – that will also obviously add to the anguish.
Third, mortgage rates are bound to normalise over the next year, which will hit many harder than tax hikes. A return of the Bank of England's bank rate to 2 per cent from 0.5 per cent could leave some families hundreds of pounds worse off.
Last, less visibly but no less importantly, will be the impact of poorer public services: longer waits for a train, library closures, scruffier parks, poorer social services, more schools with leaky roofs, higher tuition fees, and so on. Britain will be a grimier, meaner, nastier place to live; that is the real cost of the financial crisis.Reuse content