The new c-word in British politics: cuts

‘We should have the confidence to tell the public the truth that Britain faces a debt crisis; that existing plans show that real spending will have to be cut, whoever is elected; and that the bills of rising unemployment and the huge interest costs of a soaring national debt mean that many government departments will face budget cuts. These are statements of fact and to deny them invites ridicule.’

So wrote ‘Honest’ George Osborne, the Conservative shadow chancellor, in an article in The Times (London) on Monday. The Tories are keen to put some clear blue water between themselves and the Labour government. Gordon Brown and his team are doing their best to help them. Osborne is quite right to note that even under Labour’s announced plans, state spending will fall in real terms. Yet Brown has tried to con us into believing that spending will carry on increasing by quoting figures in a way that ignores inflation.

There is nothing exactly iconoclastic about Osborne’s position. It is a statement of the bleedin’ obvious that government debt is going to shoot up given the projected levels of tax income. Either the UK lives with an enormous debt burden which will cost a fortune to service in interest payments, or something must be done to bring those debt levels back down. All other things being equal, spending must fall or taxes must rise. In all probability, there will be a combination of the two. Under the plans announced by the Labour chancellor Alastair Darling in his Budget seven weeks ago, real public spending will fall by 0.3 per cent per year between 2011 and 2013 while income tax for the wealthy will jump.

However, Darling’s projections for economic growth and tax revenues are regarded as distinctly optimistic and would still leave the UK with a national debt equivalent to 79 per cent of gross domestic product (GDP). If things prove to be worse than Darling expects, Britain will soon be a bloated, debt-ridden basket case. At least those crazy Italians, with a national debt over 100 per cent of GDP, won’t feel quite so lonely.

What has been really appalling in recent months is the unwillingness of the two main parties to acknowledge these facts honestly. Short-term electoral advantage has trumped the wider interests of the economy and public debate. As Osborne himself notes in his Times article: ‘We, like Labour politicians, have fought shy of using the “c” word – cuts.’ Indeed, the Conservatives’ conversion to the cause of honesty is a very recent one.

Only last week, the Conservative health spokesman, Andrew Lansley, let the cat out of the bag. Speaking on BBC Radio 4’s Today programme, he said: ‘We are going to increase the resources for the National Health Service. We are going to increase resources for international development aid. We are going to increase resources for schools. But that does mean over three years, after 2011, a 10 per cent reduction in the departmental expenditure limits for other departments. It is a very tough spending requirement indeed.’ There quickly followed panicky ‘clarifications’ from Conservative HQ that Lansley was discussing Labour’s spending cuts, not Tory plans.

The truth is that the next few years are going to be a real shock after years of debt-fuelled spending, both public and private. As the London Evening Standard columnist Anthony Hilton put it: ‘We as a nation are going to have to make some genuinely tough choices. We are going to have to rethink what we want from public services, how much we are prepared to pay for them and what we are prepared to sacrifice. Many things we do now we just will not be able to do in future – and it would be in everyone’s interest if the government would admit it.’

Wishful thinking doesn’t only exist at the fiscal level these days. The ongoing hunt for the ‘green shoots’ of recovery shows a desperate desire by politicians and commentators for a return to the ‘good old days’ of, err, 2008. Last week, the National Institute of Economic and Social Research (NIESR) suggested that output across the economy rose in April and May, with March marking the ‘trough’ of the downturn. But even if that were the case, rises in unemployment always lag months behind falls in output, so it is quite likely that the jobless figures will carry on hurtling in the general direction of three million.

We must also take into account that if there has been a revival of output, this has been stoked by the government emptying out every last penny from the national piggy bank to prop up state spending and cut tax on purchases (and then printing more money to prop up the banks). Just as the private sector starts an anaemic recovery, the public sector is going to start shrinking and taxes will go up. While the banks are no longer in immediate danger of collapse, they will remain on state-funded life support for the foreseeable future.

If the Conservatives have finally shown a modicum of honesty about this, there still seems an unwillingness to face a thoroughgoing review of the nation’s finances. Going back to Lansley’s stated priorities, it means that spending on health and ‘school resources’ (whatever that means) will be ring-fenced. That is roughly one-third of government spending likely to be untouched. Other parts of spending, like debt repayments, are non-negotiable. That means the rest of the government budget will be hammered – leaving little room for investing for the future.

Rather than looking at how much money is currently wasted in schools and health services – we could start by scrapping school league tables and those endless government health campaigns – some areas are simply ruled out of bounds as too politically sensitive. While jobs, useful services and potential sources of new wealth should be protected as much as possible, there are substantial chunks of government spending that could be eliminated because they are actually a drag on society. There may be no need for David Cameron’s ‘age of austerity’ if we cut this regressive spending.

Scrapping the renewal of the Trident nuclear weapons system and the national identity card scheme are widely cited as good places to start. But these would be one-off savings. Areas of ongoing spending should be examined, too. The ballooning of disability benefits in recent years, for example, suggests that there are many people who have been defined as ill and consigned to a life on welfare when actually they could be more usefully employed by society. In some Welsh towns, 10 per cent of the working-age population is receiving disability benefits. The Black report earlier this year noted that such benefits, and the taxes lost as a result of these people not working, cost £63billion per year. Some of that could be saved every year, and some of these welfare recipients would be better off personally and financially if they were gainfully employed.

But even such a hard-headed review of public expenditure is not enough because it assumes that economic growth is fixed and always sure to be feeble. If we really want to turn around public finances, we must embrace the idea of real wealth creation. As noted by a number of contributors to the current spiked debate, What Future for Business?, as long as growth is seen as a dirty word or constantly undermined by demands that it should be ‘green’, the wider UK economy will never generate the kind of wealth that will pay for the healthcare, education, transport and good life that we need.

Rob Lyons is deputy editor of spiked.