24 April 2009

Cutting too much

One thing that has only really emerged from the budget a day or two later, after people had a chance to look at the small print, is the sheer scale of the public spending cuts being planned. In a prime example of the cynical manipulation that makes the budget statement such a farce, Alistair Darling said that public spending would grow by 0.7% a year in real terms from 2010 to 2013. In fact, that figure was misleading, as it didn't include investment spending, which is being cut massively. Overall, public spending is actually going to shrink in real terms over those three years. In fact, most of the heavy lifting in the 10-year plan to balance the budget by 2019 is being done by spending cuts, not tax increases. 

This is, to put it mildly, absurd. Those of us who remember the 1997-2001 Labour government will remember the two years when spending growth was constrained to the Tory plans, which were for low growth. Coming on the back of years of underinvestment, this 2-year squeeze caused huge problems in health and education which the government then spent the next 10 years trying to sort out - with only partial success. Well, the cuts planned in 2010-13 are much worse than those 1997 Tory plans. It's going to be a complete disaster. If people think the health and education systems of the UK have serious deficiencies now, wait until they've been completely starved of cash for several years. 

The correct response of a Labour government to recession was summarised by Tony Benn in a diary entry for December 1974. I don't have the exact quote to hand, but it was something like, "we are going to have to reduce our living standards over the next 12 months. But if we just do that by everyone taking two steps down the ladder, then the guy at the bottom is going to fall off". With cuts in public spending of this magnitude, there are going to be a lot of very poor, very vulnerable people falling off that metaphorical ladder.

The 50% top rate was a nice starting point for a progressive response to the recession, but if the government had had real guts it would have pledged to maintain spending as a share of GDP once the recovery starts, putting up taxes as necessary. The huge hole in the public finances needs to be filled by tax rises rather than spending cuts. It's a real shame that the government is running too scared to protect its legacy of increased spending on public services compared with the Tory years. As Tom Clark in the Guardian shows, if the spending cuts are implemented they'll leave public spending as a share of GDP back at roughly 1997 levels. And then, one might ask, what was the point of New Labour? A ten year diversion in between business as usual? It's a disgrace. 

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