On that bombshell

28 Nov 08
MIKE THATCHER | So, it’s back to politics as normal. The Tories have even revived their ‘tax bombshell’ poster campaign – credited with helping them to win the 1992 election – following Labour’s confirmation that it intends to increase taxes.

So, it’s back to politics as normal. The Tories have even revived their ‘tax bombshell’ poster campaign – credited with helping them to win the 1992 election – following Labour’s confirmation that it intends to increase taxes.

Except that there is no ‘normal’ any more. The onset of recession internationally and the decline or collapse of a host of the world’s leading financial institutions means that politicians have thrown away the rule book.

Gordon Brown and Alistair Darling have been slated for borrowing huge amounts of money to deliver a £20bn fiscal stimulus in the Pre-Budget Report. But they are not alone. This week, President-elect Barack Obama promised a cash injection in the US worth at least £330bn.

Of course, the parlous state of the UK’s public finances puts us in a trickier position than other economies, and come 2011 it will be payback time.

Clearly, there are significant tax rises to come, and not just those involving national insurance and the top rate of income tax. The leak of proposals to increase VAT to 18.5% – dismissed by ministers as an administrative error – gives an indication of what taxpayers have to look forward to.

But the public services are also in the line of fire. In 2012/13, according to the Institute for Fiscal Studies, the Treasury will garner £4bn from tax rises but £19bn from spending cuts. Spending growth for the three years from 2011/12 has been slashed from 1.9% a year in real terms to 1.1%, a difference equivalent to £37bn.

What was already a tight settlement will now be even tighter. And it will be the public service user and not the top-rate taxpayer who really feels the pain.

We face significant job losses, cutbacks in services and more calls for efficiency savings. It was ever thus, public servants might think. But this will be different. There will be no hiding place, and scrutiny like never before.

Expect another bonfire of the quangos and more questions asked about the sustainability of ‘gold-plated’ final-salary pension schemes.

Getting back to normal is a worthy aspiration for the public services, but one that is unlikely to be achieved for a number of years to come.

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