On cutting public spending


Yesterday morning I discussed public spending cuts on BBC South East’s Politics Show. You can see my brief contributions here (at around 43 minutes).

My main point was that we need signification reductions in public expenditure if we are to avoid ending up like Greece. Our budget deficit in the last fiscal year was £163bn – at 12.4 percent of GDP, the largest in the developed world. This means that the government was borrowing almost £20m per hour, every hour, for the entire year. We are already spending £31bn a year just servicing our debt (the same as we spend on the military), and this figure is only going to rise further with every billion we borrow.

As for the cuts, efficiency savings – every politician’s favourite silver bullet – aren’t really going to cut it this time. Government is certainly inefficient, and there are certainly efficiency savings that can and should be made, but we need to go deeper than that. Front line services provision can realistically be protected, but there is no way that benefits and public sector payroll costs (the main components of public spending) can survive unscathed.

A sensible strategy for cutting public spending would be as follows. First, scrap all the QUANGOs and programmes that we clearly don’t want or need: Regional Development Agencies, ID cards, the national ID database, and so on. And don’t ‘reinvest’ the savings elsewhere – just reduce overall spending. Second, look at public sector payroll: a combination of pay freezes for the low paid, pay cuts for those on higher incomes, a freeze on recruitment, and redundancies in administrative and managerial departments seems sensible. Third, turn to benefits: simply freezing them for the length of a parliament would, according to The Times, save £24 billion in the fifth year alone.

Needless to say, all this is politically difficult. Plainly no one wants lots of redundancies and pay cuts. But if we don’t take the pain now, we are only storing up more trouble for the future. Ultimately, moreover, we cannot escape the fact that, with the exception of Weimar Germany, no state has ever grown so fast in a decade as the British one has over the last ten years. And now the big government party is over, something has to give.