The public relations offensive to prepare the ground for the emergency Budget has begun. Yesterday, the Prime Minister, David Cameron, gave a speech in which he declared the paramount importance of reining in public spending. And today, the Chancellor, George Osborne, and the new Chief Secretary to the Treasury, Danny Alexander, will unveil the framework for this year's Comprehensive Spending Review and signal a determination to learn lessons from successful fiscal consolidations abroad.
There is talk of a Canadian-style "star chamber", which will pressure senior officials and ministers on their spending plans. And the deficit reduction process will, apparently, be shaped by public consultation and debate. This follows Nick Clegg's comments at the weekend in which the Deputy Prime Minister promised that the Government will go about tackling the budget deficit more sensitively than its predecessor in the 1980s.
Promises to protect the vulnerable are welcome. And so are the indications that the Government wants to learn from the experience of other nations in bringing down large deficits. But all this is only of relative comfort. Public borrowing figures for this year have actually come in below official projections. Yet cuts in public spending being planned by this Government will still be deeper than anything attempted by Margaret Thatcher. Between 1979 and 1990 overall current real spending rose every year. Only in one year – 1988-89 – was spending actually cut. Public spending did fall as a proportion of GDP, but that was mainly due to strong GDP growth in the late 1980s.
The wider economic context is now much less benign. Governments everywhere, from Dublin, to Madrid, to Rome, are moving towards fiscal retrenchment. The German government yesterday announced plans for €80bn of cuts by 2014. The problem is that if all governments slash their deficits simultaneously they risk crushing global demand, which will harm all of them.
The UK is not helped by the fact that the euro is weakening on international currency exchanges. This is already threatening to claw back some of British exporters' gains in competitiveness brought about by sterling's 25 per cent depreciation since 2007. Further afield, the latest jobs creation figures from America make for discouraging reading. This all makes the outlook for global growth fragile at best. And this is where experience of other successful consolidations is in danger of being misleading. Sweden, Finland and Canada sorted out their finances in the 1990s in the context of strong global growth. Export growth cushioned the pain of the fiscal adjustment. There is unlikely to be any such cushion for Britain, or any other nation grappling with a large deficit.
And then there is the live danger of a double-dip recession. The crisis in the eurozone could yet set off another slump. But there could be triggers closer to home. Next year, the Governor of the Bank of England, Mervyn King, has signalled his intention to remove the £185bn Special Liquidity Scheme that has propped up the commercial banks in recent years. We need to hope they are healthy enough to cope without this support or we could be facing a fresh domestic credit crunch. The dangers of cutting public spending too fast in Britain should not be ignored either. Mr Cameron argues that deficit reduction will boost general economic confidence. But it could just as easily undermine business sentiment if growth is hit too severely.
This is not to argue that the coalition Government is wrong to set about tackling the deficit. But ministers should not draw false comfort from the experience of other nations in better times. A compassionate and collaborative approach to reducing the deficit is appropriate. But still more important will be the virtues of humility and flexibility.