This is a first class assessment of our financial and economic future. Frank Field - as we have come to expect - is totally detached from party ambition and tells a very convincing story.
Meanwhile on the airwaves this morning we have Labour leaders denying the obvious and inevitable. Brown is cashing in on better news on one tiny corner while ignoring the real picture (“On fragile road to recovery” ) Miliband (the foreign minister brother) gets more shrill (“Tory spending plans would be "a tragedy" for Britain”), and Lord Myners putting his head in the sand with “We can afford to keep spending”.
The public seem to have grasped the facts of life better than the government has and are - - looking forward to/ reconciled to [delete to taste ] -- a new government. But whoever wins the election THIS is the scenario that will be played out.
This is an important political quasi-manifesto and coming from Frank Field it is doubly so.
Christina
SUNDAY TELEGRAPH
13.9.09
Bribing voters with their own money is no longer an option
This election will be utterly different from the 17 before it - because parties will be judged on how they cut, not how they spend, says Frank Field
By Frank Field MP
When asked by the Telegraph this week how he would like a Tory government to be remembered, David Cameron's answer was clear: "We sorted out the deficit."
History will indeed judge the next government by whether it walks the walk on public expenditure and provides a titanic dose of sanity to the public accounts. However, an election will have to be won first. And on this make-or-break issue, Cameron is now up against Alistair Darling, who is the first member of the Government to state publicly that the election will be a fundamentally different affair from the 17 before it.
The point is that ever since 1945, parties have competed for votes by promising to expand public expenditure. Bribing voters with their own money has been the order of the day. Now the tables have turned. Parties will be judged on how effectively they cut the size of the budget.
So voters are beginning to look for clear answers on two fronts. Will reducing public expenditure be dealt out in the old-fashioned style of cuts across the board? Or will a new government use the need to slash public expenditure as an agent to shape a new radical politics?
The reason this is so important is that this is no ordinary set of economic circumstances. All previous post-war recessions have seen the economy move back fairly quickly to what is called its long-term growth rate. This recession, however, has damaged the structure of the economy: the Institute for Fiscal Studies calculates that it has wiped out nearly five per cent of our total wealth. That means the country is permanently poorer, and will take well over a parliament just to restore its lost wealth.
The uniqueness of this recession also shows in the public accounts. In all previous recoveries, tax revenues have been quickly restored. Not so this time. The Government admits that, even with the economy growing once again, there will still be a gap of £80 billion in 2013 between revenue and spending.
So far, it has been successful in confusing the need to borrow over the shorter term, to make good the loss of revenue that comes with any recession, with the borrowing needed to make good this permanent decline in the tax take.
Each week, the Government shovels out another load of debt on to the gilt market. Despite our printing money to buy back debt under quantitative easing, the task of selling more has been far from easy – and there will be something like 35 further debt auctions between now and the next general election, with each week's batch of IOUs proving harder to sell.
The reasons are simple. Quantitative easing is coming to an end. Britain is borrowing proportionately more than any other major economy, and lenders have a galaxy of countries from which to choose. When the Government is unable to print any more new money to buy its own debt, the market will insist on higher long-term interest rates. This will not only make it more difficult to sustain an economic recovery, but it will increase the cost of servicing this debt.
Here is the basis of the next decade's politics. Whoever wins the election will have to plan to hand over an increasing share of our national wealth, first to meet interest payments, and then to repay the debt itself. These transfer payments will cut our country's living standards. [This is totally ignored by Brown, Darling, Mandelson, all the Milliband clan and Ed Balls. -cs]
Hence the importance of spelling out the nature of those public expenditure cuts. The sooner they start, the lower the long-term interest rates, and the smaller the amount of our future income that will have to be impounded for debt repayment. [Brown is still insisting on going on borrowing. Pain now reduces greater pain later -cs]
My guess is that the Government will find it increasingly difficult to join this debate in any meaningful way in the long run-up to the election. So here is the big threat to Mr Cameron – and his great opportunity. The tougher the Opposition leader is in spelling out his policy on cuts, the more favourable will be the immediate market reaction, and the level of long-term interest rates so crucial in deciding the size of the final repayments.
The conventional wisdom that tells leaders not to inform voters about any pain that is coming is about to be turned on its head. A strategy based on cuts can now be refashioned from a reactionary into a radical manifesto. After all, Labour has nearly doubled public expenditure, but the gains the electorate hoped for, have fully yet to materialise – so the way is open to argue that a radical strategy can achieve those improvements by spending less money.
Here are two examples that need to be replicated across the whole of the Government's budgets. The first is the muddle over pensions reform. Ministers plan to add an extra 5p to the standard rate of tax, which will still leave 40 per cent of pensioners on means-tested assistance. There is, of course, no way this money can be raised.
A truly reforming government could set itself the task of abolishing pension poverty by building up a compulsory funded scheme around the current pay-as-you-go state pension. It would mean that today's workers would have to put more of their pay into savings, but they would own their own assets, and gain a guarantee that no one would retire into poverty.
Such a reform would see the current £15 billion spent on means-testing for pensioners fall to almost nothing over the decades. Simultaneously, the Government should announce that its only goal in pensions was to secure that decent minimum for everyone, phasing out over a similar period the almost £40 billion taxpayers currently spend each year on subsidising pension savings.
These moves alone would transform the public accounts, lower the cost of borrowing, and so reduce the share of future income which will otherwise have to be paid in interest payments to finance the current debt programme.
A similarly radical approach must be imposed on the NHS. While productivity has improved by 23 per cent in the private sector over the past decade, in the public sector it has actually fallen. If the same productivity improvements had been delivered by the NHS, for example, the exact same level of service could have been bought for £26 billion less.
The radical alternative to an across-the-board cut in NHS services is to insist on the productivity increases that have already been delivered across the private sector. Labour has in the past been almost exclusively concerned about how much money is going into a service. The new politics will focus exclusively on outputs.
Of course, these new strategies would be difficult to enforce, especially in a country groaning under the weight of that colossal deficit. But our fiscal situation actually makes radical change more possible – and increases the likelihood that whoever wins the next election could head the league table of great reforming administrations
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