When politicians agree, watch out

September 16, 2009

Now that Gordon Brown has suffered his Damascene conversion and forced himself to utter the C word, all three UK parties are talking of how they will cut public spending if they get the chance.

The case for cuts appears to be overwhelming. This year the gap between government income and expenditure is projected to be 175 billion pounds, or 12.4 percent of GNP. For every 7 pounds it spends, the British government will need to borrow two; balancing the books would require slashing the equivalent of the entire education budget.

The following years look almost as bad. The official projections from last April’s Budget show little change in the deficit for at least the next two years. After that, it appears to come down miraculously, but then it always does in the Treasury’s medium-term projections. They are over the political horizon and largely wishful thinking.

There is plenty of scope for cutting, as always. The Taxpayers’ Alliance has done sterling work in ferreting out 50 billion pounds-worth of eminently feasible savings. These include the usual suspects which deserve euthanasia, like ID cards, the doomed attempt to computerise the records of the entire National Health Service, and vainglorious defence procurement ventures like Eurofighter, nuclear submarines and aircraft carriers.

In addition, freezing public sector pay would save 6.2 billion pounds — rather more, if the unions carried out the threat of wholesale strikes to protect their privileges. Obliging the members to make a more realistic contribution to their final-salary pensions would bring in a further 1.4 billion, although that is hardly a spending cut. There is more in similar vein, much of it quite carefully costed and sensible.

There’s no doubt that Britain’s public sector is bloated, inefficient and has blundered into areas where it has little competence or knowledge. Retreat is essential if the UK economy is to have any chance of growing faster than the stuttering, crisis-riddled progress of the 1960s and 1970s. The harder question, though, is whether swinging the axe under today’s conditions is a good idea.

Samuel Brittan, the wise old owl of the Financial Times, sees nothing wrong with allowing the state’s borrowing to rise, as he told a Spectator conference this week: “If projected savings exceed projected investment, public sector deficits may be necessary for many years to fill the gap.”

Not just acceptable, note, but necessary. Swingeing cuts when companies and individuals are also retrenching risks stagnation and unemployment. The ultimate threat is of a debt trap, where servicing the national debt smothers the economic growth which is needed to escape back towards balance.

Running up the national debt towards 100 percent of national income, as seems likely to happen, depends on finding enough foreign buyers of the stock which the government must sell, which in turn requires the buyers’ confidence that they will not be repaid in devalued pounds. Since none of the major currencies looks particularly attractive, the buyers of sterling will take the risk provided they can see a credible policy leading back towards balance.

This is where the political battle should be joined, and as the clamour grows with each party bragging that our cuts are bigger than yours, we might at least pause to wonder whether Brittan has a point.

2 comments

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Cut the aircraft carriers?
What a brilliant idea!

“the decision to mothball another eight ships will mean that 21 of the 44 are not available..Admiral Sir Alan West, the then first sea lord, has said he only accepted the cuts in return for the “jam tomorrow” of the eight Type-45 destroyers and two large new aircraft carriers he was promised.” Times Online 2006

So that’ll leave us with a knackered and out of date fleet, AGAIN. Just like in 1980, and who’d have guessed that shortly after ol’ Galtieri (just like another previous dictator) would have seen this as a provocative lack of commitment to defending national interests? The long term costs of the short sighted economic savings demanded of the Navy prior to the Falklands War would probably have paid for an entire new fleet.

Posted by Rhoops | Report as abusive

Yes it’s always the public sector that is to blame for private greed. How convenient.

So I’m being asked to increase my pension contribution again after the last rise a year ago. Oh by the way that is why I have a second pension in the first place…it ain’t free and unlike the private sector I can’t tax dodge to make up the difference.

I worked in a bank in the 80s. There is where many of the faults in this country lay then and now. I got out.

But wait a minute they’re largely public sector too, so how about a cut in bonuses?

Posted by David | Report as abusive