We have mainly faced phantom cuts so far, but the real ones will quickly follow. Expect industrial unrest, racial tension and attacks on public sector ‘bureaucrats’
In Greece, rioters throng the streets as outsiders ‘helpfully’ suggest its islands should be sold off to reduce the fiscal deficit. In the US, President Obama’s health reforms remain bogged down though, without them, health spending will rise from the current 16% of gross domestic product to an unaffordable 19.5% by 2017. Politics and cuts, in other words, are becoming incompatible. Could the same thing happen in the UK?
Our politicians are still in a phoney war about spending. Everyone is agreed in theory that it must come down. If there was any doubt, this should have been alleviated by the recent weakness of sterling, reflecting market nervousness as to whether the will to cut is there. But ahead of the election, there is no serious debate about what to do in practice.
We await Chancellor Alistair Darling’s Budget on March 24 to see if he really does set out the promised detailed programme of cuts, but to do so would be contrary to – how shall we say? – the prime minister’s style. How serious Gordon Brown is about cuts can be judged from his Personal Care at Home Bill, currently before the House of Lords. This has been described by the former Cabinet secretary Lord Butler as an ‘act of national sabotage’ because of the sheer scale of extra spending an incoming government will be committed to.
The Conservatives, meanwhile, promise action this year, but seem mostly to emphasise that the timing of the cuts will not harm recovery.
Even the Liberal Democrats don’t seem quite sure what to do. Leader Nick Clegg’s splendid reversal of their support for the personal care Bill will yield only modest savings, as they plan to spend most of the money saved on carers.
So let us be clear. There are going to have to be cuts larger than any in modern peacetime, even if a new government dares impose large tax rises. They will either have to be extended to health and education or other spending will have to be cut by 15% or more.
These cuts will be disguised before the election. There will be the ubiquitous ‘efficiency savings’, like those which, with a wave of his wand, Health Secretary Andy Burnham conjured up to pay for free personal care. No-one is against efficiency savings. That is why they have been a centrepiece of every Budget and Spending Round.
But the reality? One is reminded of Shakespeare’s Henry ‘Hotspur’ Percy in Henry IV, part I. When Owen Glendower boasts that he can ‘call spirits from the vasty deep’, Hotspur replies: ‘Why, so can I, or so can any man. But will they come when you do call for them?’
Phantom cuts will not serve to calm markets for long, so real cuts will follow. The freeze on public sector pay will last for not just one year but for several. The long boom in public capital expenditure will end, and only a few public-private partnership schemes will creep through.
Forget new railways, let alone new hospitals and schools. Social security benefits will be cut, and the post-Lord Turner Review pensions settlement will be unsettled. We shall either have to give up in Afghanistan or put up with more deaths of under-equipped troops. And so on, to the limits of the Treasury’s imagination and the guts of politicians.
What will be the effect? An unpopular government, certainly, and politicians are going to have to learn quickly about how to provide stable multi-party government should there be a hung Parliament. But it might go far beyond that. The public sector unions, who have managed to be militant even in the years of public spending plenty, will have cause to demonstrate and strike. Populism will find fertile soil in blaming Europe or immigrants or overpaid bureaucrats for our national plight. But should ministers show weakness, the markets will be there to punish them.
This is a challenge, not for a single party but for the political class.
However, the political class is not at its strongest at the moment following the expenses furore. A decade from now, we might look back with amazement at just how fortunate we were in the decade gone by.
David Lipsey is a Labour Peer
