Friday, 21 November 2014

The deepest cuts are yet to come

Britain has now experienced nearly five years of austerity. This blog has always opposed that experiment as likely to delay the recovery (which it did), as being impossible to deliver in the time-frame announced (also true) and being unlikely to reduce the UK's debt stock any time soon in any case (tick number three).

Some of the initial cuts you might have thought of as nice-but-not-essential. Baby bonds. The long-distance round-Britain coastal footpath. And so on. But getting rid of that sort of stuff only saved you a few quid in the grand scheme of things - while probably storing up problems for the future (in those cases, even more hard-up young people and even more problems getting citizens out and about).

And the knife has long since passed through the fat and the muscle. It's touching on the bone. In the next Parliament, it will sever straight through it and just keep on going. A combination of the darkening world economy, an increasingly-puzzling gap between job growth and tax receipts, and the fact that we're actually going backwards on the deficit as we approach an election, mean that the slashing is going to get worse until the 2020s. The Coalition Government announced in 2010 that it would reduce the structural (non-cyclical) deficit to zero and have the debt stock falling by the end of this Parliament in order to protect the UK's credit rating. When that particular (and laughable) 'long-term economic plan' fell apart in 2011-12, they announced that they were smoothing out their public spending reductions so that they lasted until nearly the end of the 2015-20 Parliament. So that's where we sit now - taking a deep breath until we learn how to save the rest of the money.

The much-respected Institute for Fiscal Studies reckons that the amount required to get to where Conservatives want to go amounts to £47bn. Let's put that in perspective, shall we? The total savings add up to something around 6.5% of total public spending. That's more than the whole Defence budget. It's more than half of the entire Education budget. It's more than double the Transport budget. If we say that we are going to continue to protect the National Health Service, and the schools and frontline defence equipment budgets, as well as overseas aid, that means that we have to find all that from the Department for Business, Innovation and Skills, the Ministry of Justice, the Department for Communities and Local Government and the Department for Work and Pensions. Where's it all going to come from?

Well, the DWP's chaotic and embarrassing 'reforms' are well in train now, and they keep on costing more and more. There's unlikely to be too many savings from that quarter. So here's some numbers for you: the entire research budget within BIS amounts to £4.6bn. You could get rid of the whole lot. Or you could make student loans and grants much less generous, perhaps abolishing maintenance help altogether, making the terms more onerous (perhaps hiking interest rates to market levels) and making universities themselves pick up some of the tab for raising those loans. That might save you £10bn in total. You could cut £5bn-£10bn more from already-strained local government budgets, perhaps pushing elderly care provision onto the NHS - though politicians would have to be prepared to endure scandal after scandal as elderly folk died in their beds at home. You could postpone the Royal Air Force's big forthcoming procurement splurge, massively reduce staff costs by reducing the Army to a small ready-reaction force, and/ or mothball one of the soon-available pair of aircraft carriers (which cost £17.4bn overall). You could abolish legal aid altogether, though that would raise only a trifling £2bn. At the very time when Higher Education and university research are becoming more and important in training the workforce; when the numbers of vulnerable older Britons is exploding; when our defence is reliant on the the projection of small-scale but meaningful and biting power via an (already threadbare) airborne force; when the legal system is struggling to cope with sweeping up the mess left by austerity itself - that's when you'll whip the rug away. Well, excellent.

And the really daunting thing? It looks right now as if any government that emerges in the House of Commons after a fragmented, confused scuffle of a General Election is unlikely to have much of a majority even in a two- or three-party coalition. Whoever is Chancellor after May - and it's likely to be George Osborne (above) for the foreseeable future and beyond - will have a very small (if any) majority, and will be hounded by an insurgent United Kingdom Independence Party, as well as his or her backbenchers. Think that No. 11 Downing Street will be able to plan a neat and tidy path down this particular blind alley? No, me neither.

The public are perhaps now predisposed to think that the worst is over. They certainly think that it should be. The economy is growing quite quickly. No politician is really talking about the reality that lies ahead. The Government, indeed, is dangling the prospect of further (completely fantastical and unrealistic) tax cuts in front of the electorate. But the truth is this: the worst isn't over. The most painful cuts are all still to come.