Tomorrow will see the UK's emergency budget.

Former Tory chancellor Norman Lamont says in today's Daily Telegraph that George Osborne has to be bold in tomorrow's budget so as to make a dent in the public sector deficit. We are certainly being softened up with stories of elimination of tax credits to relatively wealthy families and of civil servants having to contribute more to their generous pensions. However, if we are going to have a welfare system then there should be some universal benefits. Moving the goal posts on public sector pensions will be harder for the government to explain compared with the decimation of private schemes. This was due to the closure of defined benefit pension funds, which was not widely understood by workforces. Factors obviously include the Gordon Brown tax raid but there have been other problems such as the poor performance of equities and the increasing longevity of scheme members. Companies such as British Telecom and British Airways have become pension funds with operational subsidiaries attached.

Politically it will be a tough sell for a group of millionaires to advocate austerity. The Tories can blame Gordon Brown for economic mismanagement but I would not impose policies, which would deliberately increase UK unemployment from 2.25m to 3m. It is alright being critical of the fact that 60 pct of the workforce of the north-east depend on the public sector but it is unlikely the private sector could step in to improve matters.

Some of our problems are European-wide. The wheels are falling off in countries such as Spain and Portugal due to deficit problems, poor educational systems and weak employment formation. Much has been made of the collapse in Spanish property prices but our banks have also become property companies due to the weight of questionable loans to the sector. State pension ages have to be harmonised throughout Europe. However, there is little point us making transfers to the French economy via the Common Agricultural Policy (CAP), if the Frogs can retire at 60 while we have to soldier on until 66 plus.

On a more optimistic note the devaluation of the pound has given us some breathing space. Hopefully, families will be using the low interest rates to cut borrowings. Gilt yields are low so the financial markets are being sanguine about our prospects at the moment.