We’re all in this together, the PM and his chancellor repeatedly proclaim. How right they are.
Anyone who fondly imagined that slashing the deficit was purely a matter for public sector grief should take a look at this week’s crop of official statistics. The Bank of England has downgraded its 2011 growth forecast, as governor Mervyn King predicts a ‘choppy recovery’ ahead (see 'Recession risk heightens by budget cuts, say economists').
With inflation on the rise, a sinking housing market, and a slump in consumer confidence, this looks like elegant understatement. The US Fed has already seen the writing on the wall, and launched a ‘lite’ version of quantitative easing.
In the UK, the prospect of 25%–40% departmental cuts and 600,000 public sector job losses is taking its toll, with clear knock-on effects for the private sector. Suddenly, fiscal policy is everybody’s business.
This is most stark in relation to firms dependent on government contracts and fees. A spate of profit warnings in the social care, social housing and construction sectors show that shareholders are already counting the cost of the June Budget measures.
Noises off about the speed and ferocity of the Treasury’s austerity drive are rising in volume, including from within ministerial ranks. Accusations of a ‘blunderbuss’ approach to spending cuts – and pessimistic forecasts of a double-dip recession – are being voiced ever more openly.
Meanwhile, anxiety levels about the state of the real economy have been heightened by a series of government gaffes.
This week’s ‘milk snatcher’ Whitehall farce was only the latest in a series of mishaps by ministers keen to prove their macho cutting credentials. The Building Schools for the Future fiasco, uncosted welfare plans, and coalition U-turns on council tenancies and NHS reorganisation all smack of dogmatic policy-making on the hoof.
How cost-effective is it, for example, to dismantle primary care trusts and hand over £80bn worth of NHS spending to GPs – most of whom show little inclination to adopt the role of honorary FD?
As the King’s Fund’s chief economist asks in our cover feature (see 'Under doctors' orders'), what’s the point? In the wake of the school milk faux pas, No. 10 has apparently ordered a review to rein in any more politically embarrassing cuts plans, ahead of the October 20 Spending Review.
It should go further, and insist on road-testing ministers’ wilder proposals, before unleashing them on an unsuspecting public – for the sake of the wider economy, and for the sake of us all.
