The easy, progressive way to cut £44 billion without harming worthwhile public services or the least well off

It may sound a challenge, cutting £44 billion from public spending.

But actually, it’s easy.

Not only that, it can be done without hitting the least well off. Without cutting worthwhile public services. And if you’re so minded, you can even drape a “progressive” label over it all.

How to do it?

Simple.

You see, the last Labour Budget contained overall spending totals for the government that mean a cut in spending of £44 billion (using the calculations form the Office of Budget Responsibility). Now, because Labour didn’t publish any departmental spending total plans beyond the current financial year, we don’t know where those £44 billion of cuts were going to go.

But of course it would be irresponsible to lay out those plans without having a good idea of how you’d put them into practice if you won the election. And it really wouldn’t be the done thing would it to write a general election manifesto that confirms the Budget’s plans and required £44 billion of cuts even if you don’t really know where the £44 billion is going to come from?

So just ask Alistair Darling and Ed Miliband – the last Chancellor and the author of Labour’s manifesto – where the £44 billion was going to come from.

As I said, simple.

After all, they wouldn’t be leaving their colleagues merrily criticising just about any spending cut proposed by the new government as awful, non-progressive, unfair and heartless if they knew that those very same colleagues had just fought a manifesto that was based on anything other than nice, warm, cuddly and progressive £44 billion cuts would they?

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78 Comments

  • Andrea Gill 18th Jun '10 - 9:58am

    LOL, I think David Miliband has 1 suggestion to save £100 Million… http://www.guardian.co.uk/politics/2010/jun/18/david-miliband-private-school-subsidy

    And Andy Burnham says cut the NHS (where and by how much though, he doesn’t say).

    Any more?

    Anyone?

    Hello???

    Marco?

    Polo???

    —–

    Nope, thought not… 🙁

  • Jane Ellwood 18th Jun '10 - 10:03am

    I see.. So it’s the labour party’s fault our party has turned Tory-lite.

    Thank you so much for clearing that up for me.

    Just because they were responsible for the growing gap between rich and poor – does not mean we have to take a prime role in increasing it.

  • Richard Smith 18th Jun '10 - 10:05am

    Well said Jane Ellwood!

  • @Jane @Richard – so, how would YOU propose to make those cuts then, or should we just sit on our hands and fiddle (OK, bit difficult) while the economy falls apart?

    I am utterly baffled as to why so many moaners are surprised that our party, which has had deficit reduction and localisation at the heart of its manifesto, is actually going through with what we promised. Does anyone actually bother reading our manifestos or did you all just pick your own fantasy manifesto and pretend that’s what “our party” stands for?

  • Sir Norfolk Passmore 18th Jun '10 - 10:18am

    The biggest single project cut or shelved yesterday was a multi-billion pound investment in search and rescue helicopters. Now, I don’t know for sure whether that cut is a good idea on a cost/benefit analysis but I do know it has NOTHING to do with the gap between rich and poor.

    You are falling into the Labour trap of believing ANY cut in public spending helps the rich and ANY increase helps the poor. And it simply isn’t true. The way to assist everyone and to narrow the gap is to return to financial stability and economic growth. Then you’re in a position to share the proceeds in a much fairer way than in either the last period of Labour or of Conservative rule.

    Hearing people like that weasel, Liam Byrne, pretending to be concerned about the less well off when he knows better than anyone what the true economic position is yesterday made me sicker than anything a politician has for a very long time. It was just so grossly dishonest and misleading to the very people Labour were founded to represent.

  • Brilliant.
    But we are in danger of accepting Labour”s view that all public spending is a good thing and apologising when we have to cut.
    We should start from the assumption that the people best placed how to spend their own money are individuals. Then decide what needs to be taken away from them and spent by the state. The NHS certainly. Effective armed forces, of course. Keeping people without the ability to earn their own living out of poverty -no question.
    But a visitors centre at Stonehenge? Loans to already profitable companies? Derby Council has announced that because of the cuts they won’t be building a Velodrome – but why were they ever contemplating it in the first place?
    “All excess in the public expenditure beyond the legitimate wants of the country is not only a pecuniary waste, but a great political and, above all, a great moral evil”
    William Gladstone

  • Malcolm Todd 18th Jun '10 - 10:31am

    Well said Andrea!

    Though the lumps are getting harder to swallow. Seeing David Milliband saying “we should not be afraid of the mansion tax”… well, indeed. Nor should we. The fact that Labour were signed up to making spending cuts do more or less the same amount of the work of cutting the deficit as the coalition is is relevant to the level of nausea inspired by hearing their frontbenchers and supporters talk as if none of these cuts would have happened if they were still in power. It is relevant in that it helped to close down serious discussion of how much of the gap could be closed by well-designed taxation. It’s not a ready made excuse for every horror we’re going to be required to put up with over the coming years.

    Oddly enough, £44 billion is about the size of the defence budget. Perhaps Simon Jenkins knew something about Labour’s real plans? I want my peace dividend now.

  • Grammar Police 18th Jun '10 - 10:43am

    @ Neil, I don’t know why some people find this hard to get their heads round this – I agree with you completely. We’re not running the Government, we’re a coaltiion partner. I think Labour are disgraceful in that they attempt to make political capital out of this, when they have (a) played their part in causing these issues and (b) don’t seem to have any firm plans to get us out of the mess.
    Calling us Tories (a la Peter Hain last night on Question Time) is rich given, the point of the Lib Dems is that we’re not dogmatic about such things either way – we’re not ideological ‘cutters’ nor big state spenders.

  • Iain Roberts 18th Jun '10 - 10:54am

    Nick was the one talking about the need “Savage cuts” at the party conference last Autumn. He pulled back on the language a bit, but the intention was clear – I’m not sure why anyone would think this cuts business is something the Tories dreamed up and we’ve just followed along.

  • Andrew Suffield 18th Jun '10 - 10:55am

    You are falling into the Labour trap of believing ANY cut in public spending helps the rich and ANY increase helps the poor.

    Which is doubly ironic because quite a few of the things being cut are Labour pork projects – nothing more than a donation of public funds to rich Labour supporters.

  • Ive to yet hear much opinion on this awful ‘Free Schools’ idea ?

  • David Morton 18th Jun '10 - 11:20am

    fascinating thread and a good primer to the coming Diaspora or even Schism. On the one hand Nick and Vince could hardly have been clearer or more honest in what they were calling for and now the party has the opertunity to deliver “Savage Cuts”. On the other hand no one was paying much attention to what Vince and Nick were say or perhaps merely applauding their “Honesty” because after all we were never going to be in power to deliver were we? That’s someone elses function.

    The speed and severity with which this internal contradiction is going to be resolved will lead to facinating results. the party will either build a statue to Nick Clegg in Cowley St just after the next election or it will hang Nick Clegg from a lamp post outside Cowley Street in the middle of this parliament when the electoral carnage is at its Zenith.

    It’ll be facinating to see which it is and I wouldn’t like to bet on it.

  • Jane Ellwood 18th Jun '10 - 12:21pm

    “@Jane @Richard – so, how would YOU propose to make those cuts then, or should we just sit on our hands and fiddle (OK, bit difficult) while the economy falls apart?”

    Given the point of view you (and others) have expressed above I can only assume you didn’t vote for the libdems in the last election. Why ? Because it was precisely this type of behaviour Clegg, Cable etc were condemning during the election campaign.

    I would love to address your loaded question – but as Mark Yeates (above) has done a far better job than I could hope to.

    Is the cut to forgemasters really defensible on any level ? Can there be any reason for stopping this loan other than old-school tory ideology ? The same ideology that drives the so-called free schools ?

    The defecit is down on forecasts. Not because of cuts but because of improved tax revenues. Still think cuts are the only way to go ?

  • I despair of the basic economic illiteracy of some people …

    Every year that we run a deficit, we have to borrow to cover that deficit.

    That borrowing does not go away … To put it simply:

    Year 1: total budget £500, receipts £400, borrowing £100 – total debt = £100 (interest payment at 5% = £5)
    Year 2: total budget £500, receipts £400, borrowing £100 – total debt = £200 (interest payment at 5% = £10)
    Year 3: total budget £500, receipts £400, borrowing £100 – total debt = £300 (interest payment at 5% = £15)
    Year 4: etc etc …

    THIS IS THE POSITION WE ARE IN!!!

    Every year, the total amount of money we owe is going up and up, and the interest payments are going up and up. This reduces the amount of money we can spend on other things, because an increasing proportion of our annual spend is going on servicing interest payments.

    Even £44 billion is less than a third of just this year’s £155bn overspend, and adding to a total debt heading towards £1.5 trillion IIRC. And that debt has to be serviced; those interet payments go on and on and on …

    Labour totally failed to reduce debt during the economic boom years. If they had, then our borrowing now would not be pushing towards £1.5tr.

  • Rowley Birkin 18th Jun '10 - 12:36pm

    Ah, the terrible realities of actual responsibility! It’s quite funny to hear Lib Dem members recoiling in horror now that the party is actually in positions of power and delivering on policies they were committed to last year. What part of savage cuts in government spending, including public sector pay freeze, reform of public sector pensions, withdrawing tax credits didn’t you understand? It’s not as if that nice Mr Clegg was keeping this stuff hidden up his sleeve! I didn’t hear any of you being so unhappy about Lib Dem policy when Nick Clegg was winning the first TV debate. You did read all the small print before you signed up didn’t you?

    You did actually read the election results didn’t you? The coalition has 363 MPs of which the Lib Dems contribute 57 – that’s 16%. How much influence are you expecting to have? Maybe you think all the votes for the Conservatives only count half? Your much vaunted triple lock agreed the coalition deal so what are you complaining about? The worst the Tories can manage is a spat about how much to raise CGT and who gets to vote in the 1922 committee – small beans. Some of you guys are all for tearing up the deal and taking your ball home. Have you any idea how childish it sounds?

    What were you thinking in the polling booth this May? “Ah, another chance to salve my conscience by voting for a raft of centre left policies with some hard economic reality backing it up, but no matter, it will never _actually_ happen…..”

    I would suggest you either a) Stop bawling and take the medicine that is needed or b) Join the Labour party and vote for Diane Abbott or Ed Balls so you can continue to live in la-la land.

    (btw I’m a public sector employee with children earning median income so I am almost certainly going to lose out in the budget next week, but unlike some posters on here I understand that simply hiking taxes up while continuing to spend recklessly and accumulate unsustainable levels of public debt is not an option)

  • Labour were hit by a sudden sharp decline in tax revenues when the bubble burst. We broadly supported them in arguing that spending should not be immediately cut to match because that would cripple the real economy. Hence the deficit. Yes, Labour can be blamed for some aspects, in particular running a deficit even in the boom years before the bust. But if we believe all our own propaganda and lazily blame Labour for everything, we’re just conning ourselves into faulty decisions.

    Yes Tabman, we can’t just let it go on up and up forever. But what follows from that? Should we just try to stabilise in the longer term, or to pay some of the accumulated debt back, or what? There isn’t a simple answer. Especially because when we cut, the real economy will bite back in the shape of further falls in tax receipts, making it a real risk that the deficit will rise, not fall.

    I wish I saw our party campaigning against deficit hysteria and for a rational economic approach against the shrink-the-state zealotry of the Osbornes. Sadly some though not all of our leading lights seem to be on the side of the extreme hawks.

  • Anthony Aloysius St 18th Jun '10 - 12:46pm

    “I despair of the basic economic illiteracy of some people …”

    That’s fine – provided you were attacking Vince Cable for his “basic economic illiteracy” during the election campain!

  • Re: Free schools, not in favour, but must say we NEED there to be clear differences in our policies from that of the government, otherwise what would be the point of anyone voting Lib Dem next time?

  • Jane Ellwood 18th Jun '10 - 12:51pm

    I’m not suggesting there shouldn’t be cuts. I’m suggesting that cuts need to be targetted and timed more carefully than Georgie boy has the ability to manage. I’ve yet to see anything arise from this coalition that wouldn’t have arisen from a purely conservative government.

    @rowleybirkin good luck with the job hunting

  • Grammar Police 18th Jun '10 - 12:51pm

    @ Jane Ellwood – the removal of the loan for Forgemasters is not a “cut” – there’s no cut involved, as the loan was to cover the expansion of a business. Labour made a number of spending commitments just before the election, but without any obvious way to pay for them. Dropping some of those, and suspending others pending review seems very sensible to me.

  • Jane Ellwood 18th Jun '10 - 12:58pm

    @adambell “The cut to the Forgemasters loan was justifiable on two grounds. The first – and more importantly from a Lib Dem perspective – is that it represented a subsidy to the nuclear industry’s supply chain, which given our policy position on the matter is something we’d be against.”

    This would have given forgemansters the ability to manufacture these items for a worldwide market. Now unless I’ve missed something – the policy was against building nuclear power plants in the UK. Not to prevent our companies providing parts to anyone else that wants to buy them ? Incidentally – this won’t prevent power plants here or overseas – it merely prevents one of our companies from benefitting from it.

    “The second is the fact that the £80 million loan would have kept about 160 jobs – half a million pounds per job. How can that possibly represent value for money?”

    The key word here is “loan”. Now unless you are suggesting the money would never have been repaid – how can it not be good value for money ? Thats 160 taxpayers rather than 160 benefits claimants. If this short sighted, short term attitude is indicative of how this government will behave we are in a lot of trouble

  • Andrea Gill 18th Jun '10 - 1:03pm

    @Adam Bell – agree on the nuclear issue, however this was a loan to increase jobs due to business expansion, not to keep jobs I thought. Furthermore if this is really such an important business expansion, and Forgemaster are doing anywhere near as well as they claim on their website, why would the government need to loan them the money?

  • @Jane re Forgemasters: ‘Can there be any reason for stopping this loan other than old-school tory ideology?’

    Yes:

    1) We don’t have the money and Labour didn’t have the money (you can’t actually buy things without money).
    2) It is an indirect public loan to fund nuclear power station construction – something our party has stood against.

    @Geoffrey, I take your point, but we are still the first party to do good on pledges to increase social and council housing, and the economy does need to grow, hence wiser investment. But all these projects were not ‘wise-investment’ they were the last minute pledges to win votes. I sincerely doubt that these would have happened under Labour.

    This is not about job creation so much as private subsidy. The loan to forgemasters is like bailing out a bank – except that it is the nuclear industry.

  • David Allen “Yes Tabman, we can’t just let it go on up and up forever. But what follows from that? Should we just try to stabilise in the longer term, or to pay some of the accumulated debt back, or what? There isn’t a simple answer. Especially because when we cut, the real economy will bite back in the shape of further falls in tax receipts, making it a real risk that the deficit will rise, not fall.”

    I happen to agree with most of what you’re saying here, and its the lack of a mature debate that (i) fails to recognise the problem and (ii) shouts shrilly about how cuts are some sort of betrayal that is the problem. We are in a huge economic mess. Labour not only have responsibility for failing to adress the deficit in the boom years, but also for failing to adress regulatory issues around the banks.

    Judith Brookbank – and why do we owe money to these countries? Because we spend so much money buying goods and services from them, and they need to do something with that money. Often they choose to lend it back to us (for which we pay them interest).

    Now, from a bank’s POV, the best customer is someone who DOESN’T repay their borrowing, but keeps servicing the interest on their loan (and remains risk-free). Our problem is that because our loan is increasing, lenders may soon get nervous about our ability to service their debt interest given all the other things we want to spend money on. That’s when our problems start.

  • David Allen 18th Jun '10 - 1:43pm

    Cuts in themselves are not a betrayal, deficit hysteria is.

    There used to be two politicians who talked conspicuous sense, both pushing Brown to accept reality, while reining back on the cuts mania. Sadly Vince has gone quiet and Alastair Darling has dipped out of the Labour contest – I cannot understand why, he’s the only one of that lot who knows which way is up!

  • @jane and others. The reasons Labour should never have lent the money to Forgemasters has nothing to do with nuclear power. It is because if they cant borrow the money from their sources there is no reason to believe that it will be profitable for them to do so. Governments have shown no ability at all to decide what business should be funded and which should not. See for example Rover.

    @jane – since you agree there should be cuts could you tell us where they should be?

    @Geofrrey – you are of course right. Borrowing yet more money is the way to go. I wonder why Greece and Spain didn’t think of it.

  • @Mark Pack

    Your piece of whimsy ignores the fact that Labour promised to halve the deficit over a parliament while the coalition seems determined to reduce the deficit to zero before the next election despite the consequences for the working people of this country. When Vince Cable was his own man he supported Labour’s view that halving the deficit over a parliament was sufficient. After all, I believe we only finished paying off the Second World War debt in 2002. His damascene conversion apparently came about because of the misgivings of the credit agency people who are members of the same casino which caused the deficit in the first place. It brings to mind the words of Horace: “the just man who holds fast to his resolve/ is not shaken in the firmness of mind by the passion/ of citizens demanding what is wrong,/ or the menace of the tyrant’s frown”.

  • Horace, The Complete Odes and Epodes — Trans. D.West (Oxford 1997)

  • @Geoffrey – yes you are right. The Triumphalist tone should not be taken, and it is sad some people have done so. I think the other points you make could make for an interesting and longer discussion:

    So the issues at stake, behind all of this, are the a) timing of cuts and b) the nature of cuts.

    a) The timing of cuts has been put down to changes in the economy. You rightly point out that Spain’s downgrading happened after their cuts. But I am less sure as to the reason for the downgrading. So I hope we can get some more info. on that from someone who knows. [I am not going to claim to be an expert here, so I won’t comment further :-)]

    b) The nature of the cuts is where Labour have not been clear, have been deceptive, and muddy.

    Where Labour are right:

    i) The Tories love cuts, and are ever-so-eager to brutally cut even those things which help the poorest in society because, philosophically, they are committed to a small state regardless, and their concept of liberty is state-obsessed without taking the corporate powers and vagaries free-market into account. We must be clear that we agree with this, and are similarly opposed to mindless cuts.

    Where Labour are wrong:

    i) Stopping the roll-out of free school meals is the same as cutting them. This is not true. [There is a long, progressive argument here, but basically, the poorest will still get them, no-one will lose out, the original plans were unfunded, and stopping the roll-out will not cost jobs, as people still need to eat.]

    ii) All cuts will harm the least well off. Again, simply not true.

    iii) We are ‘the same’ as the Tories. Again, the means, the actions we carry out now might share something, but the philosophical reasoning is borne out of sad necessity rather than glee.

    I sadly cannot see where the money was ever meant to come from for these projects, and I do not see them as central to our policies – though it may be different if it were a Green Employment initiative.

    Geoff, you are right to express the concerns you do. We are the unhappy brain that has guided the knife away from the Tories’ worst instincts.

  • Andrea Gill 18th Jun '10 - 3:48pm

    This is what our manifesto actually said – YES it said at the time written, cuts look likely to start next year, however it makes clear time and time again that drastic and severe cuts are needed, and that most importantly we will not base the timing on political dogma but on the economical situation – with the market crashes on the night after the election reacting to the Greek situation, and with the advice from the BoE swiftly changing, our actions have been entirely within policy:

    dealing with the deficit

    The health of the economy depends on the health of the country’s finances. Public borrowing has reached unsustainable levels, and needs to be brought under control to protect the country’s economic future.

    A Liberal Democrat government will be straight with people about the tough choices ahead. Not only must waste be eliminated, but we must also be bold about finding big areas of spending that can be cut completely. That way we can control borrowing, protect the services people rely on most and still find some money to invest in building a fair future for everyone.

    We have already identified over £15 billion of savings in government spending per year, vastly in excess of the £5 billion per year that we have set aside for additional spending commitments. All our spending commitments will be funded from this pool of identifi ed savings, with all remaining savings used to reduce the deficit.

    We must ensure the timing is right. If spending is cut too soon, it would undermine the much-needed recovery and cost jobs. We will base the timing of cuts on an objective assessment of economic conditions, not political
    dogma.
    Our working assumption is that the economy will be in a stable enough condition to bear cuts from the beginning of 2011–12.

  • Andrea Gill 18th Jun '10 - 3:59pm

    Fuirther addition, I sincerely doubt that without our involvement, we would have gotten half a billion spending pledges (coming out of the 6.25 billion savings) for social housing, FE colleges etc. Also, Tory only cuts might well have gone only to commercial private companies like Forgemaster and been withdrawn from the NHS etc.

    Had Forgemaster been funded in favour of those hospitals that did get the go-ahead, can you imagine the outcry and the accusations towards Nick Clegg then?

  • dave thawley 18th Jun '10 - 4:00pm

    The best way to save $100B is to stop Trident. That would sort us out.

    The second best way of saving $60B if those manufacturing these weapons still get their way is have 10 warheads in a sub and the other 240 placed strategically around the UK. The 10 live ones will allow us to incinerate 10 million mainly innocent people near our enemy if required but Its well know that if we let 250 warheads go at once we would all die a horrible death from a nuclear winter and radiation sickness (honest). So why waste the money with lunch vehicles. Just blow the UK up and we will wipe out the rest of the world at the same time just as if we had lunched them ourselves – With this way though we have the added benefit of actually dying instantly as well instead over a protracted few weeks while the rest of the world staves, grows sick and dies. So not only is my way more cost efficient it is better for us all around.

  • Malcolm Todd 18th Jun '10 - 4:06pm

    MacK

    the coalition seems determined to reduce the deficit to zero before the next election despite the consequences for the working people of this country

    I haven’t seen anything that backs that up, though I admit I’m a less avid consumer of political news than many here. Last I knew, there wasn’t a huge difference between the last government’s timetable for deficit reduction and the current government’s.

    I believe we only finished paying off the Second World War debt in 2002.

    That’s a complete misunderstanding of debts and deficits. Nobody’s talking about paying off debts any time soon — except insofar as individual blocks of debt are paid back on their due dates. I don’t think anyone’s issuing debt with the sort of long timescales that were used during the war (hence some not being paid back until 2002).
    But the fact that the last of the wartime stock matured in 2002 is irrelevant. We were never out of debt — I think the last time the British Government wasn’t in debt was around the beginning of the Napoleonic Wars. And no one is even thinking about reducing our debt for years, let alone “paying it off”. However, we’d damn well better get back into surplus before the next time we hit a serious slump, or we’ll have all this trouble again and more.

  • Malcolm Todd 18th Jun '10 - 4:07pm

    David Allen

    Cuts in themselves are not a betrayal, deficit hysteria is.

    I agree with you, but would you agree that there is also a certain amount of hysteria being thrown in the other direction? I’m thinking of the suggestion repeatedly made by commenters on this site that bringing forward about £6bn of cuts to this year (1% of state spending, and about half the amount by which the deficit has just been reduced, in effect, by accident) will make the difference between the sunny uplands of recovery and a disastrous plunge into recession.

  • Malcolm Todd 18th Jun '10 - 4:11pm

    dave thawley

    Nuclear warheads on lunch vessels = barium meals on wheels? 😆

  • Malcolm Todd 18th Jun '10 - 4:59pm

    Godfrey, is that because £6bn is approximately equal to 0.5% of GDP? It sounds suspiciously neat to me. Perhaps we should just spend an extra £30bn or so, thereby bringing GDP growth up to a healthy 3%, and all will be well?

  • @ Sir Norfolk Passmore:

    On S&R helicopters, myself and all my fellow climbing & mountain walking buddies breathed a HUGE sigh of relief at this ‘cut’.

    Everyone I’ve talked to who’s in danger of having to call on this service would much, much rather be picked off the side of a wind swept ridge by an RAF pilot than a private one. Of course if we had the cash it’d be nice if they got some new helicopters for the same pilots, but that wasn’t the PFI plan.

  • David Allen 18th Jun '10 - 5:27pm

    Malcolm, yes I agree that the effect of this year’s £6bn of cuts shouldn’t be exaggerated. By either side. It is widely acknowledged that the swiftness of the action in making this “downpayment” was supposed to be a grand gesture to impress the (impressionable?) bankers and markets that We LibCons Really Mean Business. It is hardly surprising that this political gesture has similarly impressed a lot of other people, and given them the impression that Vulcan Is Now in Charge!

  • Well said Mark. Labour should put up or shut up, or be exposed for complaining about cuts that it would have made and that result from its economic mismanagement and its waste (not least the murderous, illegal and immoral Iraq War).

  • Stuart White 18th Jun '10 - 5:59pm

    What a truly evasive post this is, Mark.

    Of course, your point that Labour is is no particular position to get all indignant about cuts is well taken.

    But so what?

    The real question is not what Labour would do differently, but what a genuinely left-liberal (I’m trying hard not to use the word ‘progressive’) government would do or what a genuinely left-liberal social and political movement would campiagn to do differently. This left-liberal constituency isn’t located in any one party but is spread across several parties (Lib Dems, Labour, Greens, the nationalist parties) and includes people who aren’t in any party.

    A basic plank of a genuinely left-liberal agenda would be to make tax rises bear the brunt of deficit reduction, not spending cuts. The sad fact, which I hope Lib Dems will reflect on, is that the Lib Dems are now supporting a diametrically opposed approach to deficit reduction.

    Pointing out that Labour might do as bad, or has no ideas how to do better, seems like the rhetoric of desperate defensiveness. Have you lost the courage to judge the government by your own standards?

  • Andrew Suffield 18th Jun '10 - 6:12pm

    Sadly Vince has gone quiet

    I’d imagine that he’s up to his neck in work trying to get a grip on things. What we’re seeing in cuts here is mostly straightforward stuff: pork projects and Labour promises to spend money that does not exist. It doesn’t take much analysis to cut all that. This is the “low hanging fruit” – it’s only a small fraction of the cuts needed, and there’s a lot more serious work to do in preparation for the big spending review. Cable is almost certainly busy working on that, and I would not expect to hear any initial conclusions before August at the earliest.

    Godfrey, is that because £6bn is approximately equal to 0.5% of GDP? It sounds suspiciously neat to me. Perhaps we should just spend an extra £30bn or so, thereby bringing GDP growth up to a healthy 3%, and all will be well?

    This is a correct analysis of why GDP is a fairly useless measurement. Would anybody care to guess what impact the Deepwater Horizons disaster is having on the US GDP?

    (Pause for thinking here)

    It’s massively increasing the GDP, because the hundreds of millions being spent on containment, cleanup, and disaster relief are all positive spending in the GDP metric. This property is called “uneconomic growth” – spending that represents a loss to society – and GDP does not distinguish between desirable growth and unecomonic growth. Effectively, GDP only works when there are no bad things happening.

    The best way to save $100B is to stop Trident.

    Sadly, this does not represent the reality of the insane Trident debate. That £100bn is not money that has been spent, or money that is currently being spent. It is an estimate of money which Labour wanted to start spending at least ten years in the future, over a period of decades, a proposal which makes very little sense given that this current government was never going to make the decision about whether to spend it.

    Cutting a fantasy project that won’t happen for decades is not going to have any real impact on the current budget.

  • David Allen 18th Jun '10 - 6:14pm

    On this timing question: What people are missing is the importance of an election.

    What the lenders need to know from the UK is, are you guys like the Greeks, determined to live perennially on tick? Because if you are, we will price our loans accordingly.

    When, in the dying days of the last government, Darling declared a preference for living on tick a little longer and Cable supported him, the lenders were not too fussed. Temporarily going on tick is tolerable. You do not expect a dying administration to start new bold risky activities, especially when there are valid arguments for the view that the immediate priority was to stabilise the real economy and bring back a bit of confidence after the crash.

    However, the lenders will have looked to a new government – any new government – for new policies. If the new guys also show no sign of grasping the nettle, then the lender should really start to worry about ever getting his cash back. That, I think, is what really changed the situation. No Anthony, the Greek affair did not cause everyone’s minds to change overnight, and you are quite right: by claiming incredibly that Greece was crucial, all Clegg achieved was to make himself look a lot more dishonest than he actually was!

    For those who say that Cable has done a volte-face, cast your mind back to the campaign period, when the IFS pointed out that all the parties were massively misleading the public about their cuts plans, and we shyly responded that we were being a little less dishonest than our opponents. The public largely twigged that we would all have to come clean after the election, and that’s what we have now done. (With the important exception of the losers, who don’t need to do that, and aren’t doing!)

    So it isn’t the timing we should worry about. It’s the sheer scale of the planned cuts, their rigid and ideological programming, the balance with tax rises, and the failure to act against the threats of climate change and resource exhaustion.

    If Clegg hadn’t just gone and blamed the Greek affair, he could have said some more interesting and helpful things instead. He could have talked about the need to compromise within a coalition, for example, and that this is a two-way process. He could have pledged to watch what the real economy is doing, and demand that we do not fixate on cuts to the exclusion of all other goals. He could have made the case that when a nation has overspent, it should cut back first on the luxuries, the HD televisions and the holidays in Thailand, not the necessities, e.g. teachers and infrastructure projects. (In other words, we need tax rises.)

    Why didn’t he?

  • Andrea Gill 18th Jun '10 - 7:44pm

    @Malcolm Todd – Oddly the mansion tax isn’t something I can put myself fully behind. For it to be fair, it would need to take a person’s assetts into consideration aside from the property, because if the property is the only major assett, it seems rather unfair. I know they could always sell up, but sometimes a property has been in the family for a long time, and even maintaining the property is a struggle, so this would force them to sell up.

  • Andrea Gill 18th Jun '10 - 7:54pm

    @David Allen: “If Clegg hadn’t just gone and blamed the Greek affair, he could have said some more interesting and helpful things instead.”

    I do agree he could and should have reminded people more about the nature of coalitions, and thought Danny Alexander had done so yesterday…

    However several of the negotiators including David Laws and Danny Alexander, made quicker deficit reduction a red line during negotiations with Labour – would be a little hard to blame that on the coalition…

  • Andrea Gill 18th Jun '10 - 8:41pm

    @Liberal Neil: “I am absolutely certain that the impact on the less well off will be far less with us as part of this compromise, than if we had walked away from it.”

    Completely agree, those frothing at the mouth and shouting “Betrayal” seem to be under the impression that there was an alternative to the coalition we now have, with Lib Dem influence taking the edges off the harshness while fulfilling our election pledge of being brutally honest about the deficit and taking action to cut waste in the public sector.

    I sincerely doubt that without our influence, we would have gotten Osborne to put half a billion pounds of those initial cuts back into the economy to invest in FE colleges, social housing etc…

  • Malcolm Todd 18th Jun '10 - 9:14pm

    @ Andrea
    I confess to being supremely unimpressed with the idea that poor people own £2m houses. They don’t. By definition.
    It’s all moot, of course, as the mansion tax will never get past the Tories, but look: Under the Lib Dem proposal, the owner of a £2.5m property would have to pay £10,000 per year. Assuming that the poor owner of this phenomenally valuable asset really doesn’t have £10,000 to spare (and it’s hard to tell just how unlikely this scenario is; obviously the fact that I’ve never known, met or personally heard of one of these church mice who happen to own the rectory doesn’t prove they don’t exist), she can borrow it. With a £2.5m asset as security, she can keep borrowing £10k per year for a long time before the lenders will get worried. There’s even a name for this: it’s called equity release.
    If she doesn’t want to burden her poor heirs by having to pay off a debt when they inherit their big house, then yes, let her sell it. Why not? It’s a house not an old family retainer. But she has options.

  • I am still baffled by the assumption of virtually everyone on this thread that public spending is by definition a good thing. Why do we go with labour’s assumption that whAtever level of public spending they have got to is the right one?

    We are in for five years of pain if we don’t start putting the case for a smaller state and (eventually) lower taxes.

  • Malcolm Todd 18th Jun '10 - 10:00pm

    Smcg — I don’t think everyone thinks that at all; but it’s true that we can only start from where we are, and change from state A to state B will always have effects which may not be the same as the effects of simply being in state B in the first place.
    Or to put that better — cutting spending is not quite the same as simply not spending in the first place.

    However — whilst I’m not interested in arguing that the state must necessarily be smaller in principle, I do think that we should be talking about what sort of cuts we would make if we had our druthers. Never mind the fantasy savings on Trident — what about cutting actually existing Defence spending by 50%? (See, I’m no Guardianist extremist. I’d leave them half.)

  • @Malcolm Todd
    I must confess to employing a little hyperbole when I suggested that the coalition wish to reduce the deficit to zero before the next election but it does semm that they wish to eliminate the structural deficit over the parliament. However, if you use this link http://blogs.ft.com/westminster/2010/06/cheat-sheet-for-labour-and-coalition-deficit-reduction-plans/ you will see how wide the gulf is between Labour and the Coalition when it comes to deficit reduction.
    “Nobody’s talking about paying off debts any time soon”
    Exactly. I used the Second World War example to make the point that Individuals, Companies and Countries can all live comfortably with debt as long as they can structure and service it and of course, there is a difference between the Structual Deficit and other obligations. But if you read the Tories’ General Election manifesto they use the words deficit and debt synonymously and describe the situation as “Gordon Brown’s debt”. I have also heard the Tories use the crude credit card analogy: i.e.” Britain’s overspent on its credit card”. But, I’m sure that any debt counsellor would not suggest that an individual with huge credit card debts should refrain from any spending whatsoever and starve themselves to death to pay off their debts within two months, instead of structuring their debts and paying them off over a period of say, several years. The Tories are doing this to frighten the proletariat into believing that they have to reduce the debt (deficit) to zero immediately or Britain will sink beneath the waves. What nonsense!

  • Malcolm Todd 19th Jun '10 - 11:33am

    Well, Tories talking nonsense is hardly news! But it’s not as simple as that, either.

    You’re right, of course, that it’s nonsense to believe that “Britain has to pay off its debt”, as if a national debt were comparable to an overused personal credit card. But there is a certain sense in it as rhetoric. This “paying off the debt” nonsense is all about shocking people into the idea that the public finances are in an appalling state, and drastic action is needed to put it right; and whatever you think is the best balance of spending cuts, tax rises, and economic growth to deal with that, I don’t think there’s much dispute among those who have any understanding of public finances that that’s a fair assessment of the position we’re in. But talk of structural deficit reduction and long-term gilt yields communicates nothing to most people, and would constitute no sort of explanation for the pain of redundancies, service cuts, or big tax rises that lie ahead.

    If the government were actually talking about reducing the total debt, or even reducing the deficit to zero in five years, in its specific proposals for real policy (i.e. the dull Treasury documents and OBR forecasts, the small print of the budget and the detail of the expenditure review) and not just in its populist rhetoric, then that would be a serious problem — it would indicate that we were indeed being governed by either economic morons or swivel-eyed anti-state ideologues, whom our party should have nothing to do with. The trouble is (and we’re all a bit guilty of this here), we’re treating tabloid headlines as if they were part of a serious academic debate — trying to analyse campaign verse as if it were government prose, if you like.

    Sometimes, democracy’s a bit sh1t, ain’t it?

  • Liberal Neil 19th Jun '10 - 12:06pm

    @Mark Yeates”We are being led, some blindly, into a right-wing cut in public services that will be so severe as to make the public sector almost an irrelevance”

    Not really. The reductions in spending currently being proposed may reduce the public sector a bt, back to the level it was a few years ago, but they are hardly enough to make it ‘an irrelevance’.

    @MacK “But, I’m sure that any debt counsellor would not suggest that an individual with huge credit card debts should refrain from any spending whatsoever and starve themselves to death to pay off their debts within two months, instead of structuring their debts and paying them off over a period of say, several years.”

    I’m sure that any debt counsellor would start by encouraging any individual to at least reduce their monthly outgoings to the level of their monthly income as quickly as possible so that the level of debt stops increasing.

    They would then look at ways to start to reduce the debt.

    This seems to be exactly the approach the Government is taking (and, in fact, the approach Labour would have had to have taken.)

  • Had an interesting twitter discussion with our local Labour council leader (not a New Labour fan it seems) yesterday. He pointed out that until the new leader is elected, they can’t really come up with new policy. Interesting calculated move from Brown if true, but our Cllr did voice great frustration at MPs being reduced to vitriolic sniping

  • Patrick Smith 19th Jun '10 - 3:51pm

    This erudite thread on the economy poses some concerns that are precipitate, even for the most committed supporter of the Coalition Agreement and implementation of the progressive L/D policy supporters that I count myself among.

    One very important concern is the threat of rising unemployment that may well emerge from the impact of the coming rounds of the deficit measures, particularly in all major industrial cities, including London, Birmingham and Sheffield.In London unemployment has increased by 9% to 366,000 and nationally is at 2.47 Million, this month.

    The policy stated in the `Coalition Agreement’ is not to fund new Nuclear Energy Plant and that clearly rests at the core of the decision not to make the Government loan of £80M to Forgemasters.

    In the Forgemasters case the existing jobs are apparently not affected by this decision but it is plain that this industry is one well established over time and at a zenith point of hard economics.However, a job prospect in the nuclear industry for a potential skilled employee remains in the context of a volatile energy market : that requires more green investment in safe non nuclear fuels, over this next five years.

    The vital task to develop greener and cleaner energy alternatives to nuclear power is highly desirous over the next years in the North of England and Scotland and South Wales,but today there is still a deep industrial legacy to heavy industry including Coal,Steel and Ship Building and many families still have the grit in their nails.

    The heavy industry high skilled jobs in precision engineering and welding are not being replaced in the employment market in per capita jobs terms for the tens of thousands of families, who sent men down the mines and millers to turn steel in Sheffield.To do so should also be an important task of Government.

  • @Liberal Neil

    “I’m sure that any debt counsellor would start by encouraging any individual to at least reduce their monthly outgoings to the level of their monthly income as quickly as possible so that the level of debt stops increasing.”

    Can’t disagree with much of that. The only point of dissonance is “as quickly as possible”. Labour’s plan to cut the structural deficit to 0.7 per cent of National Income by 2014/15 apparently involves a total tightening of £51 billion or 3-4 per cent of National Income. The Coalition’s desire to eliminate the structural deficit by 2014/15 would apparently involve a total tightening of £85 billion or 5.7 per cent of National Income. And then there’s the departmental cuts on top of all that. Given Patrick Smith’s comments on unemployment we could extend the crude credit card analogy to suggest that if the individual reduced his or her monthly outgoings to an unrealistic level of their monthly income they might not be able to afford to live or work and so would be out of a job and out of a life. For “as quickly as possible” I would substitute “as quickly as is reasonable to maintain employment and a basic quality of life.” I’m certainly not suggesting that the individual shouldn’t make economies. But really, this credit card analogy is totally facile. That’s why the Tories introduced it. It’s in the same domain as Thatcher’s household budget economics. It implicitly predicates a repayment of all debt, for all time, which isn’t going to happen. But it has certainly frightened a lot of workers into voting for severe and sudden cuts which will cost them their jobs.

  • Rowley Birkin:

    It’s a shame someone so eminently sensible as you is not in the top tier of public service instead of the middle. It’s frightening how many people don’t understand basic finance and think there’s a Magic Money Tree.

  • Erm… just a minor point, but given that Labour (like the pre-coalition Lib Dems) have always argued that we should aim to halve the deficit over this parliament, while the coalition is now proposing to eradicate it entirely (requiring an additional £40 billion or so in tax rises and spending cuts), can’t they quite consistently and credibly condemn up to £40 billion worth of such measures while maintaining that they would not themselves have introduced more or less the same measures if in government? In fact, can’t they add on to that £40 billion figure the value of any tax cuts made by the coalition with which they disagree (since every £1 billion in tax cuts obviously has to be paid for by £1 billion of tax rises and spending cuts elsewhere which would not otherwise have been necessary) – e.g. the tax threshold rise and cuts in corporation tax? FInally, can’t they add the add on the value of the additional tax revenues the government would have received, and of the benefit costs that would have been saved, if the economy had been allowed to grow at the higher rate the OBR was predicting prior to the budget?

    So Labour (and any Lib Dems who are broadly sticking to their pre-coalition view) are on perfectly safe ground condemning the £13bn VAT rise, the £11 billion benefit cuts, and maybe an additional £25 billion or so of the coalition’s supposedly ‘unavoidable’ measures.

  • @ Oranjepan

    You seem to be addressing the ‘cut now’ vs ‘cut later’ argument; I was making a point about *how much* to cut by, and how quickly, not when to start. Even if it’s true that we now know we must start reducing the deficit asap, I don’t see how it follows that we must do so with the ultimate aim of wholly eliminating that deficit within a single parliament. Why not aim to bring it down to the EU’s preferred limit of 3% of GDP, say?

  • @ Oranjepan

    “Simply speaking, it is unsustainable to break both GSP guidelines at the same time without a plan.”

    Of course. But again, it doesn’t follow that we had to adopt precisely this plan.

    “Gordon Brown himself wrote the ‘golden’ economic rule which said borrow to invest, not to finance current debt, so reducing the deficit to the maximum 3% limit would be insufficient because it would still mean net debt would rise above 60% within 2 years. As it is under Osborne’s budget proposals it still looks likely the UK will exceed 60% over the course of this parliament – which will mean even this drastic action couldn’t prevent Brown’s policies breaking his own rules.”

    Yes, there’s no way round the fact that debt is going to break through that 60% ceiling, & of course there’s a case for ensuring that it does so by as little as possible and for as short a time as possible. But implicitly, that ‘possible’ means ‘possible without paying an unacceptably high price’. Plainly the fact that an end is in itself desirable does not mean that any means to achieve that end are justified, or that all other desirable but incompatible ends must be disregarded. A balanced and principled judgment has to be made, and all the talk of ‘unavoidable’ steps obscures this fact.

    “It also means Labour’s stated intention to halve the deficit (ie to 6%) over four years by returning growth and maintaining an economic stimulus is and was always both completely unrealistic and unfeasible”

    You seem to be implying that Labour intended to cut the deficit without cutting spending or raising taxes at all, simply by relying on growth. That’s not right – they’ve always taken broadly the view the coalition is taking, which is that while growth will get us some of the way, spending cuts and tax rises will also be necessary. Where they differ is on the questions of when to start cutting and how low the deficit should be by the end of the parliament.

    And the elephant in the room, of course, is the question of whether the coalition’s plans are themselves realistic and feasible. Cutting overall spending is excruciatingly difficult, simply because cuts in one area (e.g. job creation) tend to necessitate rises in others (e.g. spending on unemployment). I worry that the coalition are going to find themselves running to stand still as the bill for social failure climbs ever higher. And while Labour would have been fighting essentially the same uphill battle, I suspect they wouldn’t have been throwing quite so many obstacles in their own way.

    Ultimately, of course, the luxury of being in opposition is that we’ll never know whether Labour would have done a better job. But I can’t help thinking that for all this talk about ‘unavoidable’ measures, the Tories actually view the present situation as a golden opportunity to do a lot of Toryish things: scale back the welfare state, increase VAT, cut business taxes and direct personal taxes, etc.

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