The major parties are still not giving anything away about their spending plans, but they should see the recession as a chance to push for overdue reform
As politicians come back from their summer breaks and the last party conference season before the general election approaches, attention is sure to return to the issue of public spending cuts. So far, the debate on the outlook for public spending has barely risen above the level of the playground, with cries of ‘Tory cuts and Labour investment’ on one side and ‘we won’t say what we’re going to do, until you say what you’re going to do’ on the other.
At one point, the prime minister and the leader of the Opposition were even reduced to calling each other ‘Mr 10%’ and ‘Mr 13½%’. This is not good enough. Controlling public spending is going to be a major priority for the next government, whatever its political complexion. The electorate need to know what each of the major parties will do, if they are in power.
Before the general election, all the political parties need to be more honest about their spending plans. Labour should acknowledge that they will have to cut departmental spending in real terms. The Conservatives should admit that they plan to cut spending by more than a Labour government would. The Liberal Democrats should spell out their plans for deficit reduction. All parties need to tell us, in plain English and without caveats, what their priorities are for public spending and what they think we can do without.
The starting point for any assessment of the outlook for public spending is the April 2009 Budget. It envisages a reduction in the fiscal deficit from £175bn in 2009/10 to £97bn in 2013/14. This is achieved with the help of a 25% cut in real capital spending between 2010/11 and 2013/14, while real current spending increases by just 2% over the same period. The Budget does not contain detailed spending plans. But we know that there will be significant increases in debt interest payments and social security spending over this period, so other spending will have to be cut, perhaps by as much as 7% in real terms. If real current spending in some areas – health, children, schools & families and international development – is not cut, then the budgets of other departments might have to shrink by 10% in real terms over this period.
In his response to the Budget, Conservative leader David Cameron called the planned deficit reduction ‘completely inadequate’ and he and shadow chancellor George Osborne have subsequently reiterated this charge. It is fair to assume, therefore, that a Conservative government would target a lower fiscal deficit in 2013/14 than the £97bn deficit set out in the Budget. It is not clear what Cameron and Osborne would regard as ‘adequate’. But if they target a deficit of, say, £60bn and they do not increase taxes by more than set out in the Budget or cut social security benefits, they will have to cut real departmental expenditure by about 15% between 2010/11 and 2013/14. If they persist in their plans to exempt health and international development from real cuts in current spending, then the budgets of other departments might have to be cut by 20% in real terms.
We need to hear from the government whether it is still committed to maintaining real spending on health, schools and international development and, if so, how it will allocate real cuts in spending of 10% across other departments between 2010/11 and 2013/14. This would best be done by conducting a Comprehensive Spending Review for the years 2011/12 to 2013/14, and publishing the results well ahead of the election.
We need to hear from the Conservatives about what they regard as an ‘adequate’ plan to reduce the fiscal deficit and what mix of higher revenues and lower spending they intend to use to achieve it. If this means they have to find real cuts in spending of up to 20% across all government departments, other than health and international development, between 2010/11 and 2013/14, they need to tell us how.
It is not enough for any party to talk of efficiency savings or closing down quangos. Spending by all departments will have to be looked at afresh; major programmes will have to be re-examined; and areas previously regarded as off-limits will have to be considered for cuts.
The task should not just be approached in a negative way. Spending restraint should be seen as the catalyst for long overdue reform. If the public sector faces an age of austerity, it needs to use it as an opportunity for a comprehensive re-examination of what it does and how it does it.
Kate Stanley is deputy director of the Institute for Public Policy Research
