With the IMF and the European Commission raising concerns about current austerity strategies, the chancellor’s plans are suddenly looking out of step
How low can public spending be allowed to go? For public services, this is the issue of the moment, as the chancellor prepares for his 2015/16 Spending Review on June 26 – and ministers slug it out over who gets prime pickings from the meagre funding crumbs.
It’s also a question exercising minds at the International Monetary Fund. Chief economist Olivier Blanchard has warned that George Osborne could be ‘playing with fire’ if he fails to modify his austerity strategy. And Fund chief Christine Lagarde has expressed concerns about our lack of growth.
European Commission president José Manuel Barroso believes EU countries may well be ‘reaching the limits’ of their current austerity policies.
With the IMF lowering its UK growth forecasts for 2013/14, and yet another ratings agency downgrade, the size of the public spending cake is no mere academic debate between economists.
If the chancellor proceeds along his current path, non-protected areas like local government face 50% less income by 2017/18.
Ironically, despite the recent 1980s nostalgia-fest, and the Iron Lady’s reputation for ‘rolling back the frontiers of the state’, total public spending grew steadily over most of the Thatcher era. Contrast this with the present government’s radical ambitions for shrinking the state.
In its efforts to drive down the deficit, the Treasury plans to slash Whitehall spending still further, take an axe to Annually Managed Expenditure – in particular, the welfare bill – and accelerate cuts to the public sector workforce.
So what might this future small state look like?
The New Local Government Network and other think-tanks have been busy ‘re-imagining’ local services after they’ve been on a 50% austerity diet.
Spending on education and leisure could well be reduced to zero, and care services forced to rely on the kindness of neighbours. Newcastle City Council, which has recently had to cut its entire culture budget to pay for social care, could soon be the template.
Not that any of this is being spelt out by those actually in charge of the purse strings.
As Tony Travers points out in this month’s PF cover feature, the timing of the Spending Review means the 2015 general election will be fought on the basis of unknown expenditure plans.
Nor has the Opposition been any more candid about its future spending commitments.
This is unsurprising, given politicians’ fear of alienating an electorate that, as many polls indicate, is still strongly wedded to the idea of the state as a social safety net.
But given how much – including the UK’s international credibility - hinges on the future size and scale of public spending, we should be told.
This is an updated version of a column that first appeared in the May issue of Public Finance
