'You can grow your way out of recession; you cannot cut your way out,’ warned the chancellor as he outlined the government’s spending plans in this week’s Budget.
And, in many respects, this is true. Keynesian arguments have generally won the day across the world’s major economies. Cuts are out and fiscal stimuli are in – at least in the very short term.
Alistair Darling was therefore able to delay the inevitable pain coming the way of the public services. Spending growth will be relatively buoyant until 2011 – particularly for health and education – and thereafter will shrink to an annual average of only 0.7%.
It might be delayed pain, but that will not make it any the less uncomfortable when it does arrive. The 0.7% growth figure, compared to the 1.2% promised in November’s Pre-Budget Report, represents a significant reduction in planned revenue spending.
The chancellor pulled a crowd-pleasing new 50% tax rate for high earners out of the hat, but this is unlikely to fill the fiscal black hole. In fact, the Centre for Economics and Business Research believes that the tax hikes on the rich will actually reduce government revenues rather than increase them.
Despite the initial headlines, the 2009 Budget was more ‘soak-the-public sector’ than ‘soak-the-rich’. It might be worse still if Darling’s highly optimistic estimates for growth and efficiency savings do not come to pass.
Much was unsaid in the Budget speech but, once the recession comes to an end, it is clear that the prognosis for public services is far from healthy. Services will suffer and thousands of public servants will lose their jobs.
It will, of course, be a chance to review the way that public services operate. The chancellor has already indicated the direction of travel by supporting the radical ideas put forward in the Operational Efficiency Programme – including greater privatisation and joint procurement.
It’s certainly an opportunity to think the unthinkable, but is hardly the legacy that New Labour expected to leave.
