During the election campaign, all three parties were united in their agreement that big public sector cuts were needed to tackling our record deficit. Figures of around £70 billion were spoken of, and commentators criticised the parties for only identfying a fraction of those.
There was one area of disagreement. The Conservatives wanted to make £6 billion of cuts immediately, whilst the Lib Dems and Labour argued that would risk pushing the country back into a double-dip recession.
I’ll be honest – I’ve not got the faintest idea who’s right on that one. I genuinely don’t have a clue whether a 1% cut in public sector spending will push us back into recession or not. I’d quite like to hear from someone who can explain to me how to figure it out, but that’s probably one for another day.
So here we are. The Lib Dems have either looked at the figures and decided a cut can’t wait, or decided that it’s probably the right thing to do politically, economically or both, and the coalition government is united behind making these savings.
But what of Labour? There seems to be a lot of confusion.
Two approaches from Labour would be completely fair.
They could argue that the cuts are generally OK, but not yet: they should be delayed until 2011 when the economy is a little stronger.
They could also argue about the detail of the cuts – suggest what should be cut instead to make the savings.
Doubtless a few people are, but there are a lot more jumping up and down about how terrible it is that such-and-such a quango is being scrapped or scheme being dumped, without giving so much of a hint that cuts have to be made somewhere, this year or next, and if not there, then where?
That’s not to say the coalition will get everything right – I’m sure it won’t. Those directly affected by any cuts will quite understandably and rightly argue their case. But those involved in serious politics know that it isn’t enough to just say “that’s a bad thing to do“, without having some idea of what you’d do instead.
So come on Labour. Either say “Yes, we agree that this should be cut, but please do it next year, not this” or “I don’t agree that this should be cut, I’d like to see that cut instead (and in 2011).”
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38 Comments
It is easier to implement cuts at a time when there is economic growth. The idea of the economic stimulus, which the Tories never believed in, is to create the growth to make the cuts more palatable.
Now the last growth figures it can be argued do give cover for the modest cuts now being implemented. However that growth is fragile and could be thrown into reverse by the problems that Greece is now having.
If the cuts are implemented at a time of low growth, then people lose there jobs and the knock on effects will be to put the economy back into recession. Then you get a vicious circle. A recession means less money collected in taxes and it becomes harder to pay off the debt. Then you lose your credit rating, interest rates on your debt go up and you get a Greek style nightmare.
So the question of timing is absolutely crucial to get right in this regard. It is not a trivial detail.
I should add that the question of content is also important. Not replacing Trident for example would be a way of cutting the debt without affecting a huge number of jobs. The cuts need to be judged in terms of job losses, and whether they are real savings or if they create more costs elsewhere.
@Geoffrey Payne
“Not replacing Trident for example would be a way of cutting the debt without affecting a huge number of jobs. The cuts need to be judged in terms of job losses, and whether they are real savings or if they create more costs elsewhere.”
Absolutely. Get rid of real waste.
If you’re expecting the Labour Party to come forward with sensible argument rather than opportunistic frothing you are going to be sorely disappointed.
Re: Trident – This IS part of the defence review, however any potential savings in this are being spent on improving conditions and equipment for troops from what I understand
@Andrea Gill
If some of the money that would have been spent on Trident was to be spent improving conditions on our young men and women posted to war, then I would be happy to accept that as a necessary spending pledge, even in this time of austerity. I thought one of our campaign pledges was to raise the level of pay for newly qualified military personnel to the same level as that for newly qualified nurses and policemen. Whenever I suggested that to people, they universally agreed with that, even if it meant heavier cuts elsewhere. Whatever happened to that pledge?
I expect the Tories would have liked that pledge too, so would be surprised if it didnt make the cut. How much did it cost?
@Andrea,
Re: Trident – This IS part of the defence review, however any potential savings in this are being spent on improving conditions and equipment for troops from what I understand
Yes one of the important difference about this sort of substitution would be where the money goes. Trident aside from the cost on a major capital programme rather than labour intensive, is in large part a purchase from the US and would be money leaving UKplc – not really stimulating jobs here. Paying more to soldiers etc has the value that much of this gets spent in the economy.
Hence the real value in raising tax threholds to £10,000 – much of that extra money in people’s pockets goes straight back into the local economy.
Labour will just adopt the script the Tories were using in opposition. That the coalition should cut bureaucrats and waste, and protect front-line services.
If you’re hoping for more detail than that, you’re a lot more optimistic than I am.
I would have thought the facts that Germany has entered into a double dip recession, a poor crop of recent statistics from the US and the problemswith Greece/Euro would all be pretty good indicators to those LibDems who are still Keynesians (Vince are you still with us or have you gone over entirely to the dark side?) that now is not the time to start cuttling. Of course those LibDems who belong to Mrs Thatcher’s Manchester School, such as very obviously David Laws, will now be be relishing the cuts.
So democracy was trashed last week with the 55% rule and packing the Lords, Keynes is being trashed this week, who/what is next – Beveridge??
And please note I haven’t argued that there doesn’t need to be cuts – I just want to wait until there is clear growth in the private sector – so that here is something to ease the pain of those made redundant by the public sector. The people concerned may be employed by quangos or doing things that manyt would not consider socially useful – but they still deserve compassion. I find it very revealing that ther eis no announcement of how many jobs will be lost as a result of the £6bn+ of cuts – or don’t LibDems (other than Geoffrey Payne?) care about such things anymore?
The trouble with the argument about not replacing Trident is that it is really about “austerity tomorrow”, even before the election there was some consensus amongst people from all 3 parties that any replacement should be pushed back a further 5 years to 2029.
As Geoffrey Payne has said, cutting now may cause issues. However, the reverse is also true; one of the reasons for the problems in Greece is that the markets didn’t have much faith in the Governments desire or ability to make such cuts. If the markets start feeling the same way about us, it wouldn’t take much for a run on the pound to take place and for our rating to be dropped.
As, of course, a lot of our manufacturing has gone to cheaper areas of Europe/the World, a run on the pound will push up the cost of imports which will drive inflation upwards (it shouldn’t be forgotten that RPI/RPIX are already running at over 5% ).
In truth, it’s really a case of pay your money and take your choice (or even damned if you do, damned if you don’t). The current round of cuts are little more than a statement to the markets that we are serious about getting things under control again, it may buy some time to sort out all of the reviews/audits to see the true state of the pain awaiting us.
Yeah, we aren’t actually spending any money on that yet – and in fact this Parliament will probably not spend any significant amount of money on that either way. 5 years is about enough time to do some research and start inviting people to make bids.
Thje only thing you can say about £6bn cuts is that its only 1% of what is needed and a new government has to show the markets that it is serious. Whether it is the right time, you can safely leave the anster to that question in the hands of the expert economists. As G.B. Shaw said “If all the economists in the world were laid end to end they would still not reach a conclusion”. Labour is that party that left this country in a mess and they were still spending when they went out of office. All those good things that they did were done on borrowed money. Its so easy until, as the man said, there is no money left!
“Thje only thing you can say about £6bn cuts is that its only 1% of what is needed ”
That my be your view – but you certainly have no expertise in Economics since that would amount to nearly 4 times last years’s deficit and over half of total public spending. Do come back when you have something serious to say.
And you wont be taken seriously if you keep spewing that nonsense about “democracy being trashed” by the 55% dissolution rule.
It is innocent public sector workers and their families who are going to suffer as a result of the Tory government’s cuts. The people who caused the recession – the fat cats in the City and Wall Street – they will barely suffer at all (and will soon complain if they do).
@toryboysnevergrowup
The defence budget alone is over £32bn so I don’t see how £6bn is over half of public spending!
I’m Keynesian in outlook, however I temper that with the fact that spending should be getting value for money. Not waste as in the case with the Labour spending. The new government have to get the waste under control.
BTW I take it you are Labour?
I reckon Labour don’t need to decide anything. They don’t need to put forward any alternative programme, any more than the Tories did when Labour was in power.
All they need to do is turn the spotlight on every cut to public services that the government makes. Every failing hospital, every failing school. Every person who doesn’t get the medical treatment they need because of cuts, every person who dies because of cuts.
No – it’s not fair that an opposition should be able to do that. Then again, is it fair that the Lib Dems should be able to campaign wholeheartedly against all sorts of policies, and embrace them as part of a coalition agreement less than a week after the polls close?
Politics is a dirty business.
Economically, it’s easier to make cuts during times of plenty. Politically, though, how are you going to justify cutting public sector jobs when there’s no direct incentive to do so? Considering the size of the public sector in our economy, it would be electoral suicide. In the aftermath of the Greek collapse, politically speaking now might be the only time to make these kind of cuts, which might be why the Tories have been so keen to push through these cuts right now as opposed to waiting.
Surely Labour should take a leaf out of the Lib Dems’ book and “oppose all cuts” .If it’s been good enough for the LDs for the past three decades I don’t see why Labour should play by different rules.
Chris
Yes I am Labour – but that is irrelavant to the argument. No I don’t like waste so by all means save money in one area and deploy it to others that are more deserving – but that is not an argument for wihdrawing demand from the economy at the current time. But even Keynes thought that public works which involved digging holes and filling them in, although he clearly set his sights higher, would be better than taking effective demand out of the economy.
I wasn’t saying that £6bn was over half of public spending – but it would be if it was multiplied by 100 as another commenter suggested.
@Geoffrey Payne
“Now the last growth figures it can be argued do give cover for the modest cuts now being implemented. However that growth is fragile and could be thrown into reverse by the problems that Greece is now having.”
The Q1 2010 growth figures have been revised up this week from 0.2% to 0.3%, so there’s a reducing risk of growth being thrown into reverse.
As for losing your credit rating, then the risk for the UK is that the rating agencies don’t believe the government is serious about taking action on the deficit or don’t believe it has the strength in parliament to push the measures through. Its not the same as Greece where the government didn’t even know how big an deficit it was really running and where the is a huge black economy.
Anthony, what Labour should do – assuming it wants to return to power – is offer credible alternatives to the middle-classes of the minor cities and small towns which formed the backbone of the 1997 landslide and which went Blue this month.
On the matter of the title, see this reason for rejoining the Labour Party.
In other words, she loves being an oppositionist.
It is important to get the figures correctly in perspective. Yes, these cuts are only the first small part but not as small a part as some people seem to be suggesting.
£6.2 billion of cuts were announced of which £0.5 billion will be reinvested leaving a £5.7 billion cut this year. At last estimate that brings the deficit down from £159 billion to £153 billion, still extremely high but (partially thanks to better than thought tax revenues) already considerably lower already than the £173 billion Labour were predicting for this year at the last budget.
However, that is divided into the cyclical and the structural deficit. The idea being that the cyclical deficit is that part of the deficit effectively ’caused’ by the recession, and the lower tax reciepts and higher welfare spending it brings, and will naturally dissapear as we return to steady growth (an admittidly reasonably large if).
The Lib Dems and Conservatives before the election both only committed, roughly speaking, to eliminate the bulk of the structural deficit, that part of the deficit that will not dissapear even with a return to steady growth, a still considerable £70 billion at last estimates. They have both accepted £12 billion worth of Labour tax rises, put in place by Gordon Brown before the election, such as the 50p income tax rate. They have also made various tax cut commitments, but these are meant to be evened-out by other tax rises brought in, so in theory cancel out for the purpose of these calculations.
This gives us £58 billion of structural deficit not taken care of by tax rises. The Coalition has comitted to eliminating the “bulk” of this over the next 5 years. No one has been willing to state precisely what that means, presumably because no-one can predict precisely what growth and hence tax revenues will be over the next few years and, hence, precisely what any given figure will achieve, so, quite understandably, no-one wants to make one. “Events dear boy, Events”, as Harold Macmillan once said. Or, in more technical terms, the margin of error on all these estimates is quite large, making precision not only impossible, but down-right misleading.
However, it is possible to have some idea. Before the Election the Conservatives said they wanted to deal with teh deficit by cutting £4 for each £1 raised in extra taxation. Applying this to the £12 billion of tax rises accepted, we get £48 billion of cuts and a total structural deficit reduction of £60 billion over the next 5 years.
So, we’ve had £5.7 billion of cuts out of £48 billion, roughly . Or, given margin of error and government’s usual ability to over-estimate savings and under-estimate costs, about £5 billion out of £50 billion.
Either way, the cuts recently announced amount to about 10% of the total we are going to get over the next 5 years. Leaving £45 billion left over the 4 years after this one, or about £11 billion a year, unless growth severely exceeds expectations, and may we all pray that it will.
@Stephen W
Thanks, that was useful to put everything into context.
BUSINESS GROUPS BELIEVE RECESSION PERSISTS
A report by accountancy firm Grant Thornton polling 150 UK
mid-market chief financial officers and chief executives has
found that many companies still feel their business sector is in
recession. In construction, 87 percent of those polled believed
their sector was in recession, with the figure 58 percent in the
industrials and chemicals sectors. Half of the people surveyed
said the cost of funding and banking requirements had increased
following the financial crisis. CBI deputy director-general John
Cridland called for the government to continue to invest in
capital and infrastructure, saying the economy was “fragile”.
Would the last Keynesian in the LibDems please turn out the lights before leaving. Now is not the time for £6bn of cuts.
Or Labour could do what we used to do and oppose every single school and hospital closure.
Industrial growth was at 2%. But overall growth of 0.3% does not signify a good time to make cuts. So as I mentioned before, OK to make cuts that do not create big job losses, but do not put the country into recession.
@toryboysnevergrowup
Nice piece of selection quoting, full FT article went on to state “By contrast, 71 per cent of those surveyed in fast moving consumer goods said that their sector was recovering, followed by 63 per cent who saw growth in technology, media and telecommunications.”
“Two approaches from Labour would be completely fair.
They could argue that the cuts are generally OK, but not yet: they should be delayed until 2011 when the economy is a little stronger.
They could also argue about the detail of the cuts – suggest what should be cut instead to make the savings.”
To be honest, there is a third approach which would be pretty damn fair, in the circumstances. They could point out that the Tories had consistently promised massive cuts in wasteful spending alone. They could offer to support all cuts that leave useful programmes and front-line services unaffected.
Let’s remember that at election time, all three parties (us least) provoked widespread anger amongst the general public for their blatant dishonesty. Alongside all the radical blarney now emanating from the coalition, it would be nice to see a bit more emphasis from us on just telling it straight.
@David Allen
“it would be nice to see a bit more emphasis from us on just telling it straight”
Lets all wave our order papers on this forum in support of that! During election campaigns, in government and in opposition. Always. No spin, no nuance, no dodging, no avoiding the question, no knocking down strawmen, no trumping, no finessing, just spell it out – let us the public agree or disagree – but just spit it out, for goodness sake.
@Paul McKeown:
“No spin, no nuance, no dodging, no avoiding the question, no knocking down strawmen, no trumping, no finessing, just spell it out – let us the public agree or disagree – but just spit it out, for goodness sake.”
And then everybody completely change their minds on major issues once the votes have been counted…
@Stuart Mitchell
“And then everybody completely change their minds on major issues once the votes have been counted…”
Rather not, please! But regarding this now or later nonsense, I think some of our top folk, didn’t believe what they were saying during the election, anyway. So, naturally, it’s come back and bit them where they would rather sit. Serves them right.
MarK Inskip
The selection was the FT’s not mine – it came from their summary. If you believe that the survey is enough to say the recovery is underway, even after the events of the last few weeks in the rest of the world which are not relfected in the survey, then you are very brave indeed.
Perhaps you or friends in the coalition could answer why there does not appear to have been any assessment as to how many jobs will be lost in the next year as a result of the £6.2bn of cuts. Is because the Coalition couldn’t be bothered to do the assessment or just that it doesn’t care, or is it for some other reason?? Does it worry you that the decision to make cuts now has been made without understanding its likely human impact?
Paul McKeown
“But regarding this now or later nonsense”
I am afraid it isn’t nonsense – it makes a difference to the employment and lives of real people, if you don’t believe me go and read a bit of Keynes (he was a Liberal btw – who used to be one of Vince’s heroes). Please do it before you come back and spout further nonsense.
If the UK has a double dip recession will the LIbDems leave the coalition???
” I think some of our top folk, didn’t believe what they were saying during the election, anyway.”
Oh dear. When someone says something like that, my first reaction is to ask, “What makes you think they believe what they’re saying now?”
toryboysnevergrowup
If the UK has a double dip recession will the LIbDems leave the coalition???
…………………..
I would love to know what the answer is to this….Anybody??
IMHO if there was to be a double dip the only way the libdems could possibly keep whatever honour they have left would be to leave the coalition.