Fantasy Grown-Ups

WEDNESDAY, JUNE 17, 2009

Fantasy Grown-Ups

There must be something else we can listen to

On Monday, Mrs T and I were driving along a real road in a real car in the real world listening to a play about a parallel universe. Well, to be honest, it wasn't clear if it was really a parallel universe, or whether the central character was just fantasising it was real. Or maybe he knew it wasn't real, but thought he could make it real by telling enough lies about it.

It was called the World At One, and the central character was a blustering unpleasant sounding man with the splendid Dickensian name of Mr Balls. Just like Mr Micawber, Mr Balls had mortgaged and remortgaged his house, maxxed out his credit cards, long ago lost any visible means of support, and was facing ejection by the bailiffs.

He wasn't nearly as appealing as Micawber, but his fantasy of something turning up was asserted much more stridently. Shouting out through the letterbox, he tried to blag the bailiffs with his alternative worldview:

"Of course there's going to be tough choices, of course we're going to have to be more efficient," he screamed. "I think with tough choices we can see real rises in the schools budget and the NHS budget in future years.

"If we get the economy right, as I believe we are doing, I think we can see the spending on schools and hospitals rising in real terms after 2011."

Sadly, the bailiffs were unimpressed. After a few minutes of Ballsian drivel, they smashed down the door and carted him off to the Marshalsea.

****
So does Labour expect anyone to believe their fantasy "tough choices" somehow avoid the need for real painful spending cuts? Or could it be that they actually believe it themselves?

Of all the people in the cabinet, the one who is supposed to be most grounded when it comes to the purse-strings is the Chief Secretary to the Treasury. He/she is the one who's supposed to rein in spending colleagues, and constantly talk down the prospects for extra cash.

But the new incumbent - the splutteringly slippery Liam Byrne - is just as bad as Balls. He says:

"You've got to separate two kinds of spending here. You've got to separate current spending, that is the day-to-day cash in hand. In real terms that grows by 0.7%...

It is a bit of a red herring, I think, to try and mix up capital spending and current spending. You know, if you put the two things together you get the numbers that you talk about. Because of course once you've got a school, you've got a school. Once you've got a hospital, you've got a hospital. The thing that really matters is what happens in the day-to-day current spending. The overall envelope rises by 0.7%."

So cuts in capital spending - which are eye-wateringly savage under Darling's most recent plans - somehow don't count as "cuts".

And what's with this "spending envelope"? The term implies that we know nothing of the envelope's contents - only that the overall total for current spending rises by 0.7% pa in real terms. The composition is unknown and we can choose how to divvy it up.

But of course, we do know something of the envelope's contents already. We know that they include rapidly rising debt interest payments - over which the government has no control - and also rising expenditure on welfare benefits, again very tricky to control.

And as the IFS spelled out, once you net off realistic estimates for debt interest and welfare payments, the residual "envelope" shows a real terms decline of 2.3% pa post 2010-11 (eg see this post... and it would still be a decline even if you looked at current spending only).

The government has not given us a proper spending breakdown past 2010-11. But for that year, we know that total spending is projected to be just over £700bn (Total Managed Expenditure - TME). Of that, just under £300bn comprises spending that the government does not directly control - largely welfare benefits and debt interest. Which leaves around £400bn that it does in theory control, and can cut.

We know they're already planning swingeing cuts in capital spending, so let's focus on the non-capital element of this £400bn, which amounts to c£350bn.

Of that non-capital element, some £100bn comprises Health spending, which has been ring-fenced by the Tories, forcing Labour to match them (although on BBC R4 Today this morning Darling was back-peddling furiously from Health Secretary Burnham's recent pledge).

Which leaves less than £250bn to take all the cuts.

The trouble is, with total cuts required in the range £50-100bn, that means areas from Schools to Defence to Criminal Justice all having to take cuts in current spending of 20-40%.

Or to put it another way, that simply ain't gonna happen: the pain will have to be spread much more widely. It will have to encompass not only scared cows such as the NHS and overseas aid, but also something that hasn't had much attention so far - the level of welfare benefits.

Outside the government, everyone - including George - is saying that the issue about cuts is no longer whether they will be needed: they definitely will.

The issue now is what cuts are we going to impose?

And the sooner we have that real grown-up discussion the better.