So What Would They Cut?

SATURDAY, SEPTEMBER 12, 2009

So What Would They Cut?

They cannot be serious

The Labour movement is founded on the belief that, whatever the fiscal weather, government spending more of your money is always A Good Thing.

We can see that very clearly in some of Labour's knee-jerk responses to yesterday's TPA/IOD paper on cutting public expenditure.

Take top Labour journo Kevin Maguire. He says he'd only support two of the 34 proposed cuts - "abolishing ID cards and grounding [the] Eurofighter".

Fine. But those two account for just £0.8bn of the total £50bn proposed. So how would he make up the other £49.2bn? What else would he cut?

Or would he increase our taxes to fill the gap?

Needless to say, he doesn't tell us. Instead, pausing only to dismiss the TPA asfoam flecked and the IOD as frothing (this is top flight journalism), he links through to Straw Jnr's blog Left Foot Forward, where Maguire reckons we can find a "useful deconstruction of the cuts".

So what does Mr Straw have to say?

It turns out his useful deconstruction only extends to five out of the 34 proposals, so he may have overlooked the other 29. No matter, he's probably got a lot of more important things on his mind, and here's what he says on the five he doesdeconstruct:

• Two year public sector pay freeze, saving £12.4bn pa - Straw says"the cut would impact the quarter of public sector levels working in poverty wages". We say OK, so the public sector is a rubbish employer... but how does that deconstruct the TPA's proposal exactly? Maybe Straw thinks the TPA/IOD should have recommended moving more public employees into the private sector. He also quotes an old pre-crash IFS report pointing out that a public sector pay squeeze "is likely to lead to recruitment and retention difficulties and/or reductions in the quality of staff willing to work in the public sector". We say hmm... wonder what the IFS think about that in our jobless joyless post-crash world.
• Cut non-frontline staff in schools and hospitals by 10%, saving £2.2bn pa - Straw says "these figures fail to take into account any of the efficiency savings already announced by the Government". We say he's talking about the utterly discredited Gershon "efficiency" programme - the one that actually only delivered a quarter of the savings claimed by Labour (see many previous posts eg here).
• Cut 10% from the budgets of non-ministerial departments, saving £1.7bn pa - Straw says "[cutting] the Crown Prosecution Service and the Serious Fraud Office... could mean 10 per cent fewer serious crimes ever coming to justice". We say er, yes, it could mean that. But since the CPS is one of the most ineffective quangos known to man (see this blog), and since the SFO has a bungling record as long as your arm, we don't think we need lose any sleep.
• Abolish Sure Start, saving £1.5bn pa - Straw says Sure Start works and should be kept. We say Sure Start has been a dismal failure in reaching the bottom tier children it was aimed at, as even Blair finally admitted (see previous posts eg here).
• Abolish Educational Maintenance Allowances, saving £0.5bn pa- Straw says it's increased education participation rates. We say it's been a hugely expensive fiasco (see this post).

And beyond all that, the question for Straw is the same - if you don't like the TPA's cuts, what are you going to cut instead?

Or are you going to increase our taxes still further?

But hey, let's not be too hard on Straw. He's young and has seen little of the worldoutside student and Labour politics.

Unlike the Labour movement, he may yet grow out of it.

FRIDAY, SEPTEMBER 11, 2009

Cuts - Must We Suffer Another Dunkirk?

Concentrating minds

Today's joint report from the TaxPayers' Alliance and the IOD sets out 34 specificspending cuts that would together save £50bn pa.

Here's the summary (click on image to enlarge):

The cuts include many of BOM's old favourites (perhaps unsurprising since The Bloke was a co-author):

• Abolish Sure Start - a failed programme (eg see this blog) - saves£1.5bn pa
• Abolish Building Schools for the Future - wasteful and unaffordable (eg see this blog) - saves £2.3bn pa
• Scrap the NHS supercomputer - unwanted, way behind schedule, and far too expensive (see many previous blogs, eg here) - saves £1.2bn pa
• Halve spending on consultants (eg see this blog)- saves £1.1bn pa

However, as you will see, the biggest proposed savings come from abolishing universal child benefit (estimated net saving of £8.4bn pa from switching tomeans tested system with all benefit lost for families earning over £50k pa), and a two year freeze on public sector pay, saving a cumulative £12.4bn pa.

It goes without saying that none of the proposed savings are painless. Even if it's only consultants losing their government contracts, spending cuts always involvesomebody feeling pain. And we should never expect they'll simply grin and bear it.

At this very moment, Tyler is listening to the TPA's Matt Sinclair being lambastedby listeners to BBC R5, calling to say that abolishing Child Benefit for families earning over £50 grand would be cruel and unnatural. People on fifty grand do not consider themselves rich, and they don't see why they should be whacked. "We don't think the money should be taken from us," they say. "We think it should come from the rich".

Of course, fiscal sophisticates like you and I understand that there aren't enough rich Rich people to go round, and that in reality, an annual income of £50k pa puts a household in the top 20% of the income distribution (see here) - ie by the standards of the other 80%, they are the rich. But that doesn't alter the way £50k households feel about the prospect of losing their Child Benefit.

So what if we can't cut spending?

Yes, that's right - taxes will have to shoot up. And as it happens BDO Stoy Hayward have just produced a useful report looking at what that might mean.

They've combed through the various pronouncements of the three main political parties and come up with the following menu of tax increases to raise £16bn pa (click on image to enlarge):

There are a couple of points to make.

First, none of these tax increases are any less painful than cutting Child Benefit - it's just that the pain may fall on different people.

And second, £16bn is nowhere near enough. If we scaled it up to the £50bn offered by the TPA/IOD proposals, we'd be looking at the following possibilities:

• 25% VAT
• 30% Capital Gains Tax on your first home
• 6 percentage points increase in National Insurance rates (total employers and employees contributions)

Wonder how R5 listeners would react to that lot?

The truth is we are in a very bad place, and we can't stay here. Either we cut spending or we have to increase taxes. A lot.

Our problem is that most of us have not yet understood our plight. We're not yet ready to face facts and recognise we'll all have to make sacrifices. We're in the Phoney War and Dunkirk hasn't yet happened.

But watch this space. If the bond and currency markets turn on us - believe me - subjecting child benefits to means testing will be the least of the sacrifices we'll have to make.

And not everyone will get off the beaches.