Public affairs and communications management

"This week George Osborne delivered the most extensively trailed Budget in the modern era. A combination of the election campaign, the Coalition Agreement, announcements from the new Office of Budget Responsibility and old fashioned leaks, meant that the public had been softened up with dire warnings of biblical proportions about the scale of the economic challenge bequeathed by the last government. Despite the extensive forewarning, the sheer enormity of the fiscal tightening that faces us over the next few years is staggering.

The political impact will rattle the foundations of the fledgling Coalition government. Liberal Democrat support for the Conservative-led coalition is justified by the claim that the most vulnerable in society will be protected from the worst of the cuts, and that the pain of debt repayment will be progressively distributed - with the better off taking a greater share of the burden. On the VAT increase in particular, this position is unsustainable. The grass roots of his party are distinctly uncomfortable. Only last week Simon Hughes MP (Deputy Leader and de facto voice of the party activists) called on the Chancellor not to raise VAT, labelling it the "most regressive tax".

On Income Tax, Liberal Democrat influence is clearly behind the move to raise the personal allowance threshold by £1,000, taking nearly 900,000 people out of tax, whilst dropping the higher rate threshold to ensure the savings apply to only the lowest paid. They can also claim credit for the new Capital Gains Tax rate of 28% for higher rate tax payers, although their original target was for a top rate of 50%.

On public sector pay and cuts to the welfare budget, Conservative arguments have clearly been successful. Equally on departmental spending, average cuts of 25% per department will radically reduce the size and activity of all government programmes, in line with the Conservative agenda to replace 'the big state with the Big Society'. But the major gamble is whether cutting spending this sharply will encourage or hamper private sector growth. Alistair Darling recently called this the 'giant seesaw' myth, arguing that it unlikely that the private sector will automatically grow into the gap when public sector jobs are cut. With a quarter of the UK's workforce employed in public sector and a private sector heavily reliant on public sector contracts and the spending power of public workers - many will worry that a new surge of unemployment will undermine the recovery from recession.

Independent commentators are now casting doubt on the government's claims to have delivered a 'tough but fair' Budget, with the Institute for Fiscal Studies arguing that other than the measures left over from the previous government the Budget seems considerably less fair. People at the lower end of the income scale rely more on government spending, are more likely to be employed in the public sector and spend a greater proportion of their incomes on VAT applicable goods and services. With household budgets under pressure from the increased cost of living, wage restrictions, and substantial reductions in benefits (child tax credit in particular), lower and middle income households will feel the pain acutely.

Party strategists will already be thinking in terms of electoral impact. There are local elections in 2011, London Mayoral elections in 2012, and a General Election in 2015 at latest. The coalition will struggle to survive these tests. The Liberal Democrats will face public anger on the doorstep for supporting this radical cutting agenda and as we get nearer to these elections, we can predict greater parliamentary unrest. With real battles ahead over Europe, constitutional reform and tuition fees - the potential for the Coalition to collapse remains a real possibility."