The optimistic bit is at the very end. Otherwise this fleshes out the article I sent out earlier.
Christina
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TELEGRAPH 10.11.09
How to solve Britain's fiscal crisis: lessons from history
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By Jeremy Warner
This ought to be read in conjunction with the column published in this morning’s Daily Telegraph [sent out by me under “"outright fiscal catastrophe only a matter of a year or two off" - - unless” -cs] , which in the context of discussing Britain’s coming fiscal consolidation cites the “Geddes Axe”, a draconian programme of public sector cuts which took place in the 1920s. Space constraints prevented me from referencing the work from which I drew my knowledge of the Geddes Axe, an excellent little paper from the Institute for Fiscal Studies, written in association with the Economic and Social Research Council, called “Public Spending in Hard Times”.
The paper discusses two lessons from the past in fiscal consolidation – the aforementioned Geddes Axe from the 1920s, and the period from 1975 to 1985, when the relative size of the state was also shrunk. By far the most dramatic of these two consolidations was the Geddes Axe, wielded in response to growing public concern over supposedly wasteful government spending and high levels of taxation.
At an average per head of 20p in the pound, tax was actually still very low by today’s standard, but by comparison with the pre-war Victorian and Edwardian age, it was high. The campaign was led by the then Lord Rothermere and propogated through his newspaper, the Daily Mail. Eventually it succeeded in getting several MPs elected to parliament. The Liberal coalition government of the day responded by appointing a special committee under Sir Eric Geddes, a former railwayman, to add to what the Treasury had already persuaded government departments to offer up by way of savings.
The Geddes cuts fell most heavily on the government’s running costs, but there were also big reductions in defence spending and in the social, welfare and pension provisions which had been introduced by the Liberals the previous decade. By the look of things, history is about to repeat itself.
The report’s authors, Christopher Hood, Carl Emmerson and Ruth Dixon, draw a number of conclusions from these past examples of government cost reduction. Substantial job cuts were made in both the 20s and the 70s/80s, but they would be harder to reproduce today because in the 20s they were substantially achieved by axing temporary staff – mainly women – taken on during the war, while in the 70s it was through closing down nationalised industries and privatising manual public sector work.
The most important lesson in both instances is that “normal” Treasury processes of negotiating spending with departments had to be augmented by other institutional measures – in the 1920s by a special high powered committee of businessmen that effectively doubled the cuts made by “normal” processes, and in the 1970s by the conditions attached to the 1976 IMF loan. You need, it seems some form of external discipline for austerity on this scale to be imposed.
But actually there isn’t much new in these fiscal consolidations. They have happened from time to time throughout British history. Here’s the concluding sentence from Adam Smith’s Wealth of Nations, published in 1776. In circumstances where government revenues (taxes) cannot be increased, Great Britain “should endeavour to accommodate her future views and designs to the real mediocrity of her circumstances”. The only consolation in the rude awakening and reduced circumstance we seem to be in for is that our forefathers have been through much the same and lived to tell the tale. In most cases, the British economy emerged the stronger for it.
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