A bit of June Christmas cheer for Private business!

One of my correspondents has sent me arguably the best news since the start of the coalition government. It is reported by the BBC that the EHRC is going on strike . This is arguably proof that the coalition strategy is working. Let's hope many more of such agencies follow their example. The only noticeable impact of this collection of ne'er do wells, many of whom had significant and documented links with the USSR and its satellites has been to load up costs on the people that in the long run pay their wages. In the absence of the Soviets, Islamic extremists like Iran have picked up the slack in terms of funding their , in many cases fairly lavish lifestyles. Seriously, this piece has made my day. Osborne should say: 'Frankly, a permanent strike would be absolutely fine' - this strike is a catastrophe for the 'anti cuts lobby'. At a stroke it will reveal how much fat can be taken out of the system with absolutely no impact on the ordinary citizen. The only issue would seem to be whether Champagne producers can cope with the demand from every single private sector organisation that has had the misfortune to encounter this body! As the Pointer Sisters famously said - 'I'm so excited'!I'm also reminded of a quote from the now sadly departed 'X Files':

'You shouldn't play poker when you aren't holding any cards!'

Two reasons why no-one has "come clean" about the cuts

Nice analysis by the Institute for Fiscal Studies yesterday on the fact that none of the three major parties have given the electorate any details of what they are going to cut to eliminate the "structural deficit" in the public finances (currently estimated by HMT to be running at around £70 billion per year). IFS reckons that the possible efficiency savings that can be squeezed out of public spending are overstated and so we are looking at much greater tax increases - like the early 1990s for example - rather than spending cuts. Larry Elliott in the Guardian concurs and suggests that VAT will be raised to 20% after the election as part of the tax-rise package.

It is of course shameful that the parties are pulling the wool over our eyes in this way. I suggest two reasons why it's happening:

1. The fallout from John Smith's "shadow budget" in the Labour election campaign in 1992. The impact of the negative press campaign against this carefully costed programme of "tax and spend" cannot be overstated. It shaped Labour thinking on tax for the whole of the Blair era and has made all parties wary of committing to detailed tax increases on the grounds that they will get hammered in the media. The ludicrous furore over the £6bn National Insurance increase, which fortunately seems to have died down in the later stages of the campaign, is a reminder that the press are still not prepared to discuss the election in rational terms, but would rather talk about how Nick Clegg is a Russian aristocrat, or other such ridiculous crap.

2. The fact that Labour moved its Spending Review back to autumn 2010 for no reason whatsoever except that an election was approaching. If a regular spending review was mandatory - in the same way that there has to be a budget every year - then we wouldn't get politicians just moving things around to suit their own ends. (Of course, in Labour's defence it should be pointed out that before 1997 the UK didn't even have medium-term spending reviews in any structured way.)

There is also, I guess, a high level of uncertainty about how large the structural deficit is. If the global (and UK) economy bounces back strongly from the recent severe recession we might well be back in surplus in just a few years. Alternatively, if the banking crisis has altered something fundamental in the economy and recovery is very sluggish, the finances could be much worse. Nonetheless that is no excuse for not setting out plans to deal with the central scenario as well as contingencies for the worst case scenario.

One rather senses that we are in a bubble, a comfort zone which will burst pretty f***ing soon after polling day, when we wake up and see that huge cuts and/or tax rises are on the way to pay for bankers' greed and incompetence. Certainly the final leaders' debate, on the economy, is unlikely to enlighten us further as it's in none of the parties' interest to break ranks and come up with a detailed plan that would no doubt be ripped to shreds by their opponents and the media. So prepare for another evasion of the major issues on Thursday.

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.