Cut Early, Cut Right: The Stage Is Set

Osborne's Budget met the Machiavelli test pretty well: he's started on the nasty stuff at the earliest opportunity - though it would have been better still if the even-more-painful Spending Review could have been expedited.

It's less clear whether he has measured up to the Moltke test. On the one hand he took the opportunity (rightly or wrongly) to change his positioning vis-a-vis VAT; on the other, there is no sign he is modifying to any material extent the less-than-ideal ring-fence around the NHS. Will October be too late to execute this much-needed maneouvre ? Probably not, even if there are some face-saving presentational niceties to be observed. For example, some local authority services could be transferred into the NHS budget to effect the desired result.

Small-scale tactics aside, the strategic benefit of being brutally up-front with the machiavellian medicine is immediately apparent. Grown-up expectations are pretty universally aligned with reality just now: so Teresa May can can tell ACPO that 'big, tough cuts' are coming down the pike for the police, and they take it on the chin - constructively, even. The BBC can announce 'dramatic' pension and salary reductions without everyone downing tools. Estimates of 000,000's of job losses, freely discussed, serve to reinforce realism in the public consciousness.

Of course, Bob Crow is limbering into action, issuing his 'call to arms'. There will be no stopping the Trots and assorted ne'er-do-wells from chanting and marching and smashing high-street windows. Bring it on, comrades, the sooner to get your spartacist spasms out of the way.

If the Spending Review is destined to take months, let it spend the time wisely to ensure the hits land on the right things. Perhaps Daily Mail anecdotes aren't reliable to the standards required in a courtroom: but there is no doubt whatever that the public purse is routinely and monstrously abused - see Harriet's 'Peace Pods' as slated at PMQs yesterday. Every politician, national and local, should be putting acute, personalised pressure on senior public-sector management to offer up the right cuts, not the dumb-insolent, bleeding-heart headline-grabbers that are Sir Humphrey's traditional tactical resort.

No summer hols for Alexander. Price of fame, Danny, price of fame.

ND

AAA Safe - All You Need To Know

There is a mass of detail to grapple with in Osborne's Budget - particularly in the area of welfare reform. Additionally, we will not know for some time how the remarkable 25% cuts will play out that he is lining up for the spending of 'non-ring-fenced departments' (= NHS, International Aid, and leniency for Education and Defence): more on that later.

But there's a bottom line to today's news: the reaction of T'Markets.

And the consensus is ... the AAA rating is safe.

In case anyone doesn't realise, that was the acid test. And how very corrosive it would have been to our prospects if he'd failed.

Even if there is ample scope to disagree with the details, on this alone there must be satisfaction. In the coming months and years, Labour will pooh-pooh the very possibility. Easily said, after the event.

ND


PS: enjoyed listening to the apres-Budget comments of Simon Hughes, who seems to be pretty much on-side. Credit to Clegg, he is whipping in the LibDems, and the Coalition looks strong - for the time being: but what more could we ask for ?.

Ah Well - As Predicted ...

Vitaï Lamenta

There’s a breathless hush, twas a close-fought fight

No.10 gained in a famous win.

A bumpy economy, money tight -

Bad; but at last our man is in.

And it’s not coalition that sticks in the throat

Or the selfish hope of avoiding pain

But History’s Hand on the tax-payer’s scrote -

'Pay up! pay up! and pay again!'

The exchequer’s books are sodden red,

Red with the ink of a bank that’s broke;

And Darling's out; New Labour dead;

And Mandelson gone in a puff of smoke.

The river of debt has wrecked the banks,

As Brown skulks off with blackened name

And the tax-payer hears, as Sterling tanks -

'Pay up! pay up! and pay again!'

These are the words that year by year,

Whenever a Chancellor’s plans are set,

Everyone who pays tax must hear,

And none that hears it can forget.

This they must all – yes, each man must

Bear through life like a ball and chain,

And cursing Brown for his boom and bust

'Pay up! pay up! and pay again!'

(... except that, errr, Sterling isn't tanking)

ND

Budget: ND on LBC

Following the Drew debut on LBC's election-night broadcast, I shall be back between 12:30 and 4 pm tomorrow, alongside Dale.

Can be found at 97.3fm, DAB, Sky 0124, Virgin 973 or you can listen live via the LBC website.

ND

Trading the UK 2010 Budget

The budget has approached and I have freed up some cash to put into position for the Budget. Now, normally this has been a pretty easy fish in a barrell exercise; short drinks makers and tobaccco companies, take positions on small greenwash AIM companies and such like. Last year the tax break for car selling was always going to be a winner and proved to be so.

This year though there are some really complicating factors:

1) Darling has said not big announcements
2) A badly delivered budget will hammer the markets so long share positions are highly risky
3) The Pound is already quite low so a big move is a big move likely?
4) Shorting Gilts is really hard and the spreadbetting c's have very high margins so making it not a very attractive call.

All in all, has left me a bit stumped. Drink going up in price should hammer the pub operators so I am leaning towards a short on Punch Taverns and Whitbread. VAT going up wouold hit retailers but I am not sure Darling will do that this time.

On balance I am going Short on Punch and Short on the Pound - there is even a good ETF you can use in an ISA for the latter, USD2 which is short Pound and long USD. I have bought that at 3645. Punch short at 80.5. Will aim to close these calls tomorrow