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'Positive Policy' - Cuts and the need for a smaller state
Posted by Felix Bungay (@FelixBungay)
Wednesday, 3rd March 2010
3 year ago no one would have made the claim that both Labour and the Conservatives would enter the next election promising the largest cuts to the public sector in the history of the British state. How times have changed.
Labour have always been the party of public spending (tax and spend) while the Tories have hesitantly proposed the merits of a smaller state arguing for smaller increases in public expenditure, as well as tax cuts. However it was widely considered that the Conservative position on public spending was what contributed to their heavy defeats at the last 2 elections. Shortly after becoming leader in 2005, Cameron said that if he was elected he would match Labours spending plans for the next 2 years. This was a significant intellectual and political concession to the left, and something that Cameron felt necessary in his modernisation of the party. It was a spineless position at the time, and it should how haunt Cameron that he ever made it.
For too long the Conservative party was all too willing to go along with Browns spending consensus and the New Labour agenda on tax and spend. When they did propose that they would not grow the state as fast as Labour, this was viciously spun as ‘cuts’ to public expenditure most notably at the 2005 election. It is not hard to see why the Conservatives then moved to an even closer consensus on public spending under Cameron. Political expediency triumphed over ideology. However those Conservatives who did worry about the size of state spending and the growth of the public sector were vindicated. As always happens with Labour governments, they ran out of money. Gordon Browns end to boom and bust became the biggest bust for 50 years or even a century. A glut of public spending and running a deficit in the good times has left us where we are today, with the biggest budget deficit in the G20. The narrative has firmly shifted from ‘tax and spend’ to cuts.
With this the picture, both parties are now openly offering cuts, although this took much longer for Brown to concede than it did Cameron. What the debate seems to focus on now is how and when these cuts should happen; in other words how fast we should cut. This is a false debate which centres on Keynesian economic thinking. Cuts are going to speed our recovery not harm it. All public sector spending is inherently wasteful; it is spent in top down Stalinist bureaucracies without the forces of supply or demand to allocate resources efficiently. Therefore cutting public spending will free up resources to the free market to allocate efficiently ensuring faster economic growth. While there may be a short term economic cost to laying people off or decreasing public spending we do not have a choice, and the sooner these cuts are made the sooner the economy will become healthy again. A big state is a strangle hold on the economy, not an aid to it.
What really matters in the debate on cuts is if the cuts are smart cuts, if they can be done so that they improve public services (this is more than possible despite what the socialist may scream) and how big the cuts are. Both parties seem to be proposing to cut the budget deficit in half, although the Conservatives seem to be saying they may cut a little more. With the deficit currently standing at £180 billion, if we cut it in half we will still be accumulating £90 billion of debt a year; this is unacceptable. I reckon that over a 5 year Parliament you could eliminate the deficit by cutting £150 billion and relying on £30 billion of economic growth. Some small tax rises could be thrown in the mix as well. Then we would simply be left with the problem of paying down our now multi trillion national debt to ensure sound public finances. While this would be the ideal way to eliminate our deficit as fast as possible, the political cost of doing so may be unacceptably high for our politicians to consider.
What then is more realistic, and what are the smart cuts that could improve public services? Various think tanks have published their own ‘shadow budgets’ where they lay out various ideas for cuts. What is needed is a good butchers of all these proposals in order to come up with a mix and match of all the best ideas for cuts. One of the best ideas I’ve seen, is a proposal to cut various local government and regional QUANGO’s saving £21 billion and to pass the powers these QUANGO’s had onto local government. This would save money while boosting localism and democracy, bringing more of government action under the control of democratically elected bodies rather than the quangocrats. This idea is just one of the many great ideas that are out there and it’s up to the political parties to find the best ones. Currently neither party is offering to tell us how they intend to make cuts, only giving estimations of the overall amount they will cut. The public can’t really make an informed decision on this basis. We need to know what the cuts will be and how they will be made to decide who has the best proposals. The politicians daren’t start doing this.
When we get into the details of cuts the Conservatives are promising to protect NHS and international development spending, while the government has said it will protect the schools budget and ‘frontline services’ (whatever this actually means). By saying he will protect the NHS, Cameron has made the same concession to Labour again; this is most worrying. Protecting areas from spending cuts is going to make the situation worse as other areas are cut to the bone while obvious savings are precluded from the protected areas. Every area of government needs to be cut and no area should be off the agenda.
Ultimately the debate needs to move on from the idea that they only way to improve public services is to throw money at them. It’s time to move towards a sustainable level of public expenditure and a smaller public sector. It’s time for the politicians and voters to wake up to reality; the debt binge has gone on too long; public spending needs to be savaged in order to save this country’s future.
