The Independent View: It is our politicians – not the public – who need convincing of the need for spending cuts

Yesterday’s Budget was a stalling tactic. The Chancellor put off having to make the tough decisions needed to regain control of the public finances and gave no plan to move the UK back to black. David Cameron in his response promised that his Party would make these tough choices, but he failed to say how. There is a real opportunity for the Liberal Democrats, if Vince Cable can continue to lead the way as the only politician brave enough to say that the answer lies in tackling the big areas of public spending.

In Reform’s Pre-Budget analysis last November we argued that the UK economy had become dangerously obese and that a programme of public service reform was needed to rein in public expenditure.

The economic situation has deteriorated significantly since then.

The IMF yesterday revised down its November forecast of a contraction this year of 1.3 per cent to 4.1 per cent; likewise the Bank of England from 1.7 per cent in November to 3.3 per cent last month. The Chancellor himself has finally admitted that his 2009 forecasts were wildly optimistic – to the tune of 2.5 per cent of GDP.

Yet the Budget announcements have provided no medium-term (or even long-term) plan to get the finances under control. In fact, Alistair Darling said that he now expects the Government’s books not to balance until 2017-18 – two years later than his November estimates. This would mean a 15 year long stretch in the red. The most comparable period in the UK’s postwar history is the 14 years of deficit between 1974-75 and 1987-88. This period spanned two recessions, not a sustained period of economic growth.

So why are the public finances in such a mess? Partly, tax revenues will inevitably decline over the next few years as unemployment rises and activity in the financial services and housing sectors remains far below recent trends. There is little the government can do to boost these revenues (although the hike in income tax for high earners may well cause an even greater drop in tax receipts if businesses and wealthy individuals respond by relocating and foreign investors take their cash elsewhere).

What the Government can control is the level of public spending and this was where the Chancellor needed courage. No organisation likes change, particularly of the cost-cutting type. But when costs simply cannot be met, there is no choice. The Chancellor did announce greater “efficiency savings” of around £5 billion a year. But while there is a good amount of “waste” in the public sector that should be eliminated, this falls far short of what is required.

Public expenditure has reached an unaffordable level. On top of a new value for money culture in the public sector, inefficient and unnecessary programmes, entitlements and government departments must be also cut.

Speaking at the launch of Reform’s Back to Black Budget paper on Monday Vince Cable made this point. Other politicians are saying the same – in his Budget response George Osborne has called for a focus on spending restraint rather than tax rises. But where Vince Cable has stood out in the Budget debate is in having the courage to say what this really means – that the “sacred cows” of health, education, child benefit, defence and pensions must be tackled.

In Back for Black Reform has identified £30 billion of specific spending cuts that could be made next year. These reductions would not only help bring down the budget deficit, they would improve public services by forcing them to focus on their core purposes. Our proposals tackle perceived controversial areas, but have received incredible support from the public. People have not gasped at the idea of scrapping child benefit for middle class families (saving £7 billion) or removing pensioner gimmicks such as the universal winter fuel allowance (saving £3.2 billion). Doctors have urged us to argue for reducing their pay (a 10 per cent cut would save £1.3 billion) and others have said far more could be cut from the defence budget (our proposals save £2.7 billion).

In fact, rather than balking at the idea of £30 billion of spending cuts people have asked us “why so little?”. After a decade of irresponsible spending the recession has provided the country with a wake up call and the public are responding to it. People are making real cut backs to their personal and business budgets to do all they can to survive the downturn. It is not the public who need to be convinced of the necessity to reduce levels of spending, it is our politicians.

Vince Cable has been brave enough to talk about tackling public sector pensions, higher education quangos and unnecessary defence projects. Other politicians must show the same leadership.

* Lucy Parsons is Senior Economics Researcher at the independent think tank Reform.

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23 Comments

  • “Our proposals tackle perceived controversial areas, but have received incredible support from the public.”

    What exactly does this mean?

    Have you commissioned an opinion poll to determine the level of public support for your proposals?

  • Laurence Boyce 23rd Apr '09 - 3:34pm

    I totally agree Lucy. Great article. Only a fool would think that we don’t need to cut back and cut deep. Talk about “efficiency savings” is just insulting. I want to see a detailed shopping list along your suggested lines.

    Don’t hold your breath for the Lib Dems though. We talk about needing a distinctive narrative, but seem to pass up every opportunity to actually have one.

  • David Heigham 23rd Apr '09 - 3:51pm

    As so often in recent years, Reform is half right (and a good deal less wrong than some other political think tanks).

    Alatair Darling’s Budget is, like his previous efforts, a matter of hoping for the best and not preparing for the worst. The best to be hoped for now includes a very high price in unemployment and higher taxes or poorer public services for us and/or our children. This is the price for the errors of Gordon Brown’s economic policy, including the cost of the grave mistakes he permitted and encouraged the banks to make.

    The likely case (let alone the worst case) is that the price to be paid is considerably higher than Alastair Darling has admitted. The Budget documents show there was a struggle in the Treasury over how much of the damage to face up to; and the people who wanted to be reasonably frank lost as the yusually do under this government.

    The key political question is how much of the price we pay in the next few years of recovery from recession; or how much we put off for our successors and our children to pay later. Lucy Robinson is very probably right that people are ready to pay a great deal in the short term so as to put the burden of the debacle behind us. That will mean facing substantially more in the way of real cuts in public spending and real tax increases than Labour want to think about.

    The New Labour economic disaster also makes it more urgent to rethink our spending priorities. Some of the waste Reform is talking about comes under that heading: cutting policies which produce little or no benefit. Reform are following pretty much in LibDem footsteps there. But cuts today are not the priority while we are in the depths of the recession. The time for overall cuts will come as we begin to recover. We have time to work through carefully our LibDem changes of spending priorities – a process which has been underway for some time.

    Efficiency imoprovements – doing what we will go on doing but using fewer resources for every unit of output – take steady, year-after-year effort. They are not things anyone – neither the Government nor Reform – can delver by sudden decree. If they are pursued steadily they can produce better value, value which can be taken in lower cost or better services, on a massive scale. However, the live and vigourous roots of that miracle is in giving power, discretion and incentive to the people on the ground. It cannot be imposed from the top. Neither Labour nor Tories show any understanding of that simple fact.

  • Some good, some bad in this report.

    Good – cuts in defence and NHS managers salaries.

    Bad – child benefit, winter fuel payments, market rates for student loans.

    Child benefit was designed as a universal benefit historically so that mothers could receive the money without requiring any information from the fathers on pay – which he may not be prepared to give. This is still as relevant today as it was when the benefit was introduced, and any system of means testing for this would inevitably be complicated, resulting potentially in the benefit not actually getting to those who really need it – an example of this is the amount of benefit due to pensioners or to the elderly which is not currently claimed.

    The winter fuel payments should not be abolished outright, but maybe we can look at how these are paid. These are more likely to be of use to pensioners in, say, rural Aberdeenshire or the Highlands than they are in Cornwall or Kent, simply because of the higher need for heating.

    Student loan payments should never even be considered to be paid at market rates. This might be OK now, but when I was at university rates were as high as 15% – which would frankly cripple many students on graduation. I do think we need to look at the numbers of students going to university and question whether we need as many, but we should be doing this with a view to increasing support, not reducing it.

    Frankly, it scares me that Vince Cable is speaking at the launch of a paper which recommends these changes. I sincerely hope these aren’t adopted in any form. I don’t believe that these sort of policies are supported by the majority of Lib Dem members; they certainly wouldn’t be by most voters. The classical liberal direction which some in the Lib Dems seem want to head went out with Thatcher in the 1980s – and should never return.

  • James Southern 23rd Apr '09 - 5:43pm

    My guess David would be cuts will come when it turns out that we find ourselves not in the likely case – Which it’s worth noting is as predicted by those who failed to spot the current iceberg. But instead find ourselves in a ‘worse than worse case’ which is generally what those economists & other experts who did predict this are expecting.

    If this happens we’ll be cutting spending drastically later not because we’ve seen the green shoots, but because no one will lend us any more money. If this is going to happen, then we DO need cuts now, big cuts on everything and anything which won’t help the recovery. We also need a clear plan to replace the lost GDP from the city and growing house prices along with a very clear plan of how we’ll pay back the debt. Anything less and we won’t be Reykjavik on themes but Argentina.

    Given that in the cause of feathering their own nests they where destructively optimistic in the past. It seems foolish to peg our hopes that they are not doing the same again… In which case, deficit spending on any random thing (extra benefits for disabled children which won’t be spent for 18 years??) is crazy.

  • Laurence Boyce 23rd Apr '09 - 6:22pm

    “I don’t believe that these sort of policies are supported by the majority of Lib Dem members.”

    Probably correct.

    “They certainly wouldn’t be by most voters.”

    Incorrect, I reckon.

    “The classical liberal direction which some in the Lib Dems seem want to head went out with Thatcher in the 1980s – and should never return.”

    I guess you’re right, KL. So let’s just go bankrupt instead. At least that way, no one can accuse us of being heartless scumbags.

  • David Heigham 23rd Apr '09 - 9:26pm

    James

    Chris Dillow at Stumblin’ and Mumblin’ has put his finger on why the money will be there to be borrowed for a year or three. But we do need to be preparing for when it will run short, and dear old Darling shows very little sign of even dreaming it may run out.

  • Good article. And Lucy Parsons is hot.

  • Matthew Huntbach 23rd Apr '09 - 10:33pm

    Well, ok, but where are all you people demaning spending cuts when someone in our party effectively asks for lots more government money to be spent on something?

    Take:

    https://www.libdemvoice.org/opinion-the-great-home-care-scandal-13757.html

    Which of you had the courage of your convictions to say “No, what you ask for cannot be done, it would cost too much”?

    None of you – you are cowards. You will not face up to the consequences of what you demand.

  • This is a brilliant article except for one thing. When we talk about public spending cuts we always end up worried about essential services like NHS , Education, Social Services etc, but these are not the areas of biggest waste ( apart from the £12 billion failed NHS computer system which is criminal).
    £8 Billion on regional development agencies, £5billion on Business Links and business support which quite frankly is supplied free of charge to the taxpayer and better by Chambers of Commerce, the FSB, IOD and CBI.
    The Potato marketing board, The Milk Marketing board, There are at the governments last reported account wait for it 827 that is eight hundred and twenty seven publically funded quangos costing £101 Billion per year !!!!

    I would suggest that the vast majority of these could be dispensed with without having ANY negative effect on real public services and almost halving our budget deficet at a stroke.

    I am all for quality well funded public services but they MUST provide focus on results and value for money for the tax payer.

  • Great article except for one thing. When we talk about public spending cuts we always focus on the NHS, Education, Social and Welfare services yet these are NOT the areas in which savings have to be made.
    In the last published report (2007) the government admited that there are now 827 public bodies ( quangos) paid for entirely out of tax revenue and they cost £101 Billion per year.

    That is more than half of our annual borrowing requirement and virtually ALL of them could be scrapped with no discenable impact on essential public services.

  • Laurence, I’m not against spending cuts as such; I just don’t think that we should be looking at what I’d term “front end” spending first. Like Alexander says, there are other areas of spending where we could look at first – and I also don’t think you’d have much argument in a retreat in defence spending generally. We might well get to a situation where we have to look at the sacred cows at some point, but I don’t think we’re there yet.

    As far as putting the suggestions to voters go, I think we all know the answer. If we suggested cutting government spending, they’d support it. Once you get into specifics, though, it will be different. If we suggested cutting benefit spending that they received – like child benefit – or cutting services such as the NHS or education, they’d oppose it. It’s all very well being ideologically sound, but if the electorate won’t support it then you’ll never be able to implement it (and I know this is an argument which goes both ways!)

    It’s inevitable that, if you’re going to look at spending, the big spending areas are going to take proportionally a bigger hit. But that doesn’t mean that we should simply abandon the government’s duty of care to its people – and that’s where I think I differ from classical liberals.

  • Does the MMB still exist?

    This page suggests not
    http://en.wikipedia.org/wiki/Milk_Marketing_Board

  • Matthew Huntbach 24th Apr '09 - 11:08am

    Alexandar,

    I have taken some trouble to research the “Potato Marketing Board”. It appears it has been known for some time as the “Potato Council”, here’s its website:

    http://www.potato.org.uk/

    It is a subsidiary of the Agriculture and Horticulture Development Board, whose website is here:

    http://www.ahdb.org.uk/

    They are levy-based organisations, those involved in these industries fund them. I didn’t have time to see to what extent they get government subsidies.

    The AHDB states it is for “increasing efficiency or productivity in the industry”. I don’t have any reason to doubt that. The Potato council website seems to have some valuable advice on growing and storing potatoes, and it seems to me to be performing a useful function in producing wealth by making sure we have cheaply produced and well maintained supplies of this vital foodstuff.

    In other words, it’s very easy to go “Ha ha, that sounds funny, sure we could cut that”, rather harder if you look at it in detail. Plus your use of outdated terminology and lack of knowledge that it is business funded does cast doubt more generally on your assumptions here.

    The failed NHS computer system is, well I’m a Computer Scientist, I wish someone could provide me with technical details on why these things fail (I have some guesses). However, they are sold by IT salesmen on the basis that new IT systems will remarkably improve productivity and reduce costs. They are provided by private enterprise. Isn’t the sale of these things just the sort of entrepeneurial activity we are supposed to applaud? Just maybe if we had fewer highly-paid entrepeneurial salesmen whose only talent is the gift of the gab, and more highly-trained technical people who actually would be able to build things that work properly … ?

    There are big driving forces pushing up costs on society – the huge growth in the number of very elderly people is one of them. This is why a standstill budget actually results in cuts in service standard. It is why when national politicians say “Ha ha, local government wastes lots of money, let’s just cut its budget and make it cut that waste” what actually results is, well, what was reported here:

    https://www.libdemvoice.org/opinion-the-great-home-care-scandal-13757.html

    Social care of the elderly was farmed out to private providers because they would bring in “private sector know-how” and cut costs. Yes indeed, bring in cheap poorly-trained workers from overseas who’ll work long hours in shitty jobs (literally in this case) because life’s even more shitty where they come from. Bankers earning 6-figure salaries claim they deserve them because they “work their arses off” (quote from one of then in yesterday’s Guardian). Hmm, not as hard as someone who spends a 12-hour day wiping the bums of Alzheimer’s victims, I think.

  • Have to agree with KL’s analysis here: these are not the policies I want the Lib Dems to take up. As a student, the “interest at market rates” idea is stupid, especially since I’m hoping the Lib Dems would abolish top-up fees, not make them harder to pay. And calling winter fuel allowances a “gimmick” is obscene. They are nothing of the sort. Sorry this is just wrong. I hope the Lib Dems don’t implement this, and seriously doubt they will.

  • Why is everyone so obsessed with means tested benefits rather than universal benefits such as child benefit and winter fuel allowance? With means testing you have to pay for the burocracy needed to means test large parts of the population, you get people who would qulaify not wanting the stigma of applying or not even realsing there is support available to them and you get messes like people having to pay back overpaid child tax credit payments.

  • Matthew H

    I think Potato farmers know how to grow potatoes without beaurocrats telling them. I think we already eat enough chips without the need for publicly funded marketing campaigns.

    As a computer scientist not knowing why the project failed doesn’t surprise me. As someone who has worked at every level in IT for nearly 35 years I can tell you it was the oldest mistakes in the book.

    1. The user ( government) over spec’ed
    2. The outsource company overcommitted and under delivered
    3. The end users ( NHS) when allowed to try it found all the things that were missing and didn’t work thereby changing the spec
    4. A large majority of the people on the project weren’t up to the task
    5. The £400,000 pa government appointed manager of the whole project has a track record of failure throughout his career.

  • Matthew Huntbach 24th Apr '09 - 11:44pm

    Alexandar,

    Do try reading what is written, do try doing some research.

    In my case, instead of just taking what you said for granted, I looked up the thing. As I’ve already said, it hasn’t been called the Potato Marketing Board for a long time. As I’ve also already said, it’s funded by a levy paid by the producers and distributors, and not by general taxation. Its accounts are on its website.

    Looking at its site, it seems to me it is doing very useful research and development, and I am sure from what I see there myself that if I were in this industry I would regard it as performing a useful function. You muight as well say that any other professional body providing advice and support to members of a trade is “bureaucrats telling people how to do things”.

    Your explanation as to why the NHS computer system didn’t work don’t seem to me to be much more than “it didn’t work because it didn’t work”. As I said, I wanted to see details at a more technical level. If at least part of the problem is that too many programmers can’t program to high standards, it is in my professional interest to note this, given that one of the things I do is teach a Masters course aimed primarily at people who are professional programmers and at getting them to do a better job at it. I do see a lot of very horrible code written by people who supposedly are professionals at this, which does make me shudder at the thought that this sort of stuff must be thrown together in systems like this.

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