10 June 2010
The UK government must fully inform the public about the economy and the need for cuts to win political consent for spending reductions and tax rises, a leading economist told the CIPFA conference today.
Colm McCarthy, who advised the Irish government on its financial crisis, said that spending and pay cuts in that country went through with relatively little public opposition because ministers were open.
‘The process is important, the Irish government published information and encouraged public debate and laid out all the options,’ he said.
‘By December 2009, it cut public sector pay and social welfare payments in a way that would have been unimaginable a few years earlier, but the provision of information to the public meant it went through with less opposition than might have been expected.’
He said the Irish government had acted decisively to stop its budget being devoured by interest payments.
He said: ‘If the UK government decided tomorrow that it would tackle the deficit in ten years, instead of three or four, interest rates would shoot up.
‘It’s true that tackling the deficit would have some deflationary effect but not tackling it would even more so.’
McCarthy said the Irish experience suggested that ministers would opt for spending cuts – such as reducing child benefit – rather than changes to the machinery of government. ‘Politicians will tend to go for quick cash savings and defer reforms.’
He also dismissed suggestions that Greece or Ireland should leave the euro and re-establish their own currencies.
‘Can you imagine it?’ he asked delegates. ‘The prospectus for the new currency would be ”we’ve been fiddling the figures, we’ve got huge debts and as soon as we set up our new currency we want to devalue it, so how much would you like to hold”?’
Also see ‘Irelandtakes the pain’
