The news from Washington is a rare sight: a cut, and a large one at that. Senate Republicans have struck $1 billion from the White House’s proposed ballroom renovation, a project that had come to symbolise the sort of grandiosity that makes fiscal conservatives reach for their smelling salts. In the City, where we deal in pounds and pence, the reaction has been a quiet, appreciative nod. The Office for Budget Responsibility might even crack a smile.
Let us examine the numbers. $1 billion is not a rounding error. It is the kind of sum that could fund a small infrastructure project, or pay down a sliver of the national debt. Instead, it was destined for marble floors, chandeliers, and the kind of opulence that would make Louis XIV blush. The Republicans, to their credit, have drawn a line in the sand. They have said, in effect, that the public purse is not a bottomless well for political vanity.
But what does this mean for the UK, a nation that has its own fiscal demons to wrestle? The British Treasury, I am told, has been watching this with interest. Not because they have a dog in the American political fight, but because it signals a shift in the global mood. Austerity is no longer a dirty word. The era of loose spending, of quantitative easing and helicopter money, may be drawing to a close. The Bank of England’s MPC will take note. Inflation, that silent tax, has eroded purchasing power for years. A curb on government excess is a curb on inflationary pressure.
Of course, the cynic in me notes that this is but one cut in a sea of spending. The US federal budget remains a bloated beast, with deficits that would make a Victorian chancellor faint. But symbolism matters. Markets, which have been jittery about sovereign debt levels, will see this as a small sign of sanity. Gilt yields, which have been creeping higher, might stabilise. Capital flight, which has been flowing into US treasuries as a safe haven, could see a renewed appetite for UK debt if we follow suit.
The question now is whether the British government can emulate this restraint. The Chancellor’s speech at the Mansion House was heavy on rhetoric but light on specific savings. Axing the White House ballroom is easy; it is a luxury. Axing subsidies, reforming welfare, or cutting bloated public sector payrolls is harder. That is where the real fiscal discipline lies.
But for now, let us enjoy the moment. A $1 billion cut, in Washington of all places, is a victory for the bottom line. The City will raise a glass of claret to that. Just don’t expect a ballroom dance any time soon.
