The Times today leads on the fact that the Civil Service are preparing ‘doomsday cuts’ of up to 20% in public spending in order to get government finances back in order after the next election. Prime Minister’s Questions of course has focussed on little else in recent weeks but the increasingly desperate struggle on both sides to open up clear blue water between investment or cuts on the Labour side, or parsimony versus profligacy on the opposition benches.
Whatever your position on the political spectrum, the size of the budget deficit is truly worrying. This year alone, public spending will constitute 48% of GDP yet only 38% of GDP will be raised in tax receipts. That gap, an eye-watering 10% of GDP, has to be met by borrowing, something that is contingent on people wanting to continue lending money to us. The signs here are looking less than favourable.
In the first instance let me be clear that I think that the counter-cyclical spending is necessary; the aggressive actions of the Government have undoubtedly lessened the impact of the contraction. To paraphrase the Nobel laureate economist Paul Krugman, ‘public debt bad, economic depression worse.’ So, in this instance, the Tories incessant bleating about the size of the national debt misses the point*. However, politics cannot exist independent of economics, nor can economics ignore politics; confidence in the political system reinforces confidence in markets and vice versa. In short, it’s the deficit stupid. In setting up a false argument, and seeking clear ground between ourselves and the Conservatives we are not only abandoning the centre-ground; we risk playing fast and loose with Britain’s solvency.
And I don’t make this claim lightly. The first duty of any government is to be an effective steward of the nation’s finances. Labour must start to face up to the facts now that we are going to have to pare back spending; pet projects will have to be put to sleep, the credits cards will have to put cut up, and we will have to face an era of living within our means.
Whilst all this is happening, let’s not talk about another bankers ramp, or treat commiting ever larger slabs of money to public spending as a test of virility. And let’s not go for easy or politically palatable targets; Trident for example is actually surprisingly good value for money constituting only 3% of the defence procurement budget. Besides, defence spending only makes up 5% of public spending so talk of defence cuts all you like but even spending nothing on defence would still leave a massive hole in public finances.
We need to grit our teeth and look at the three biggest areas of spending; welfare, health and education. These are areas of great achievement for the government but we shouldn’t be blinded into thinking that things couldn’t be run more economically or that every penny spent has achieved value for money. And in the coming age of austerity, value for money is what will count.
In short, the till is nearly empty; let’s face up to cuts now rather than offer a false prospectus of ever-increasing spending. The public don’t buy it and neither should we.
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*Besides, much of the debt was accrued taking stakes in banks that will eventually be resold, hopefully at a net profit to the taxpayer.
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July 5, 2009 at 12:28 pm
Health care -- how do we move forward
If you want to follow the incursion of the US government into health care follow it here: http://www.ilovebenefits.wordpress.com
July 23, 2009 at 10:53 pm
Dave Semple
I was reading a recent report by CEBR publishing the usual stuff, about how public spending will decrease the opportunities for private investment. It’s fairly obvious that the cuts are coming, but its unseemly to have private companies licking their chops at the thought.
The truth is, however, that we have some huge spending priorities, stacked up ever higher by years of unproductive expenditure (e.g. the amount Thatcher spent on handing out unemployment benefits to those who needn’t have been unemployed but were kept so as a result of vindictive economic policies). Housing is now the biggest of these – and it can’t be done without public expenditure.
If we redistribute resources on the premise that society will break down if we don’t, it makes no sense to suddenly stop. It makes even less sense to consider that we’ve been forced into the position by deregulation and an irresponsible level of private lending, but are planning to extricate ourselves by applying pressure to those least able to bear it – the people who require health services, education services and welfare services.
The wealthy have their own versions of these services: it’ll be the rest of us stuck with problems when our local NHS authority refuses to offer an operation on the basis of expense, or when schools are being expected to implement Extended Schools policies without concomitant remuneration.
Now you may make the argument that ultimately all redistributive spending is predicated upon taxation, which requires an economy to succeed, in turn requiring the confidence of investors – which we are in danger of losing, should we persist in high levels of borrowing at the risk of having our rating downgraded still further.
My argument in reply is that any economic model predicated upon the labour and suffering pf the least able is both immoral and unsustainable, and that it is the economic model which should be changed, not the principle of redistribution. But you knew I would say that.