The Staggers

The New Statesman’s rolling politics blog

Cameron is wrong: the spending cuts are ideological

The Prime Minister says the cuts are not due to his “ideological zeal”. Here’s why he’s wrong.

By George Eaton Published 31 December 2010 11:31

In his New Year message, David Cameron attempts to rebut the charge that the government's spending cuts are ideologically driven.

He writes:

I didn't come into politics to make cuts. Neither did Nick Clegg. But in the end politics is about national interest, not personal political agendas. We're tackling the deficit because we have to – not out of some ideological zeal. This is a government led by people with a practical desire to sort out this country's problems, not by ideology.

Here are three reasons why he's wrong.

The coalition could have taxed more and cut less

There was an alternative to George Osborne's £81bn spending cuts: higher taxes on the richest in our society. The Chancellor has chosen to reduce the deficit through a 59:41 ratio of spending cuts to tax rises in 2010/2011, rising to 77:23 by 2015/2016 (see Table 1.1 in the Budget).

But as the graphic below from the Economist shows, most deficit reductions have involved a far more even split between tax rises and spending cuts.

The coalition's deficit reduction programme relies more heavily on spending cuts than all but two of the largest OECD fiscal consolidations.

A higher level of tax rises on top earners would have enabled a more progressive programme of fiscal consolidation (the cuts are, by any measure, regressive) and, as I explain below, a less economically reckless approach.

The coalition could have raised more revenue through a tax on land value (69 per cent of which is owned by just 0.6 per cent of the population); a genuine crackdown on the £25bn lost each year through tax avoidance; a tougher, not a weaker, bank levy; and higher, not lower, corporation tax.

The decision to rely on punitive spending cuts to reduce the deficit was a political choice, not an economic necessity.

Spending cuts harm the economy more than tax rises

Economists are agreed that the government's spending cuts will hit growth harder than tax rises would. As Duncan Weldon explains at the excellent False Economy, the fiscal multiplier (the effect on GDP of a tax rise or a spending cut) proves as much. The Office for Budget Responsibility's own multipliers (see Table C8 in the Budget) show that the cuts will reduce growth by significantly more than the coalition's tax rises.

As the shadow chancellor, Alan Johnson, noted in his pre-Spending Review speech: "We know from the Office for Budget Responsibility's own figures that a spending cut hits growth twice as hard as a tax change – three times as hard when it's capital spending."

The government's decision to ignore such economic evidence is the result of an ideological preference for spending cuts.

The cuts are permanent, not temporary

When asked by a Fire Brigade worker last summer if funding would be restored once the deficit has been addressed, Cameron replied:

The direct answer to your question, should we cut things now and go back later and try and restore them later, [is] I think we should be trying to avoid that approach.

The Prime Minister's insistence that we should try to "avoid that approach" reveals an ideological attachment to the small state and to low levels of public spending. The result will be permanently shrunken public services.

The cuts will reduce public spending from 47.3 per cent of GDP in 2010/2011 to 39.8 per cent in 2015/2016 – equivalent to reductions made by Margaret Thatcher between 1979 and 1990. But for many on the right, this is just the beginning of their long war against the active state.

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Tags: Spending Cuts David Cameron

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26 comments

Fri, 2010-12-31 11:42 — ST (not verified)

If it is ideological, you must be annoyed by the Labour government for giving him this opportunity. If it isn't ideological you must be annoyed by the Labour government for leaving us in this enormous mess.

Either way, Labour have massively let you you down.

Fri, 2010-12-31 11:50 — Rick (not verified)

This is classic Cameron. He thinks that by just saying things they somehow come true. Therefore by saying that the cuts are not ideological he believes that they're not, despite the fact that they blatently are. He is a very cynical and hateful man.

Fri, 2010-12-31 12:00 — swatantra nandanwar

You may see more falling apart at the seams in 2011 as the Coalition is being held together with duck tape and string.
Both Hammond and Lansbury coming under intense public scrutiny for failures. The Lib Dems selling their souls for Govt jobs aka latest Simon Hughes, and Camerons rednecks kicking Europe into touch. First casualty of 2011 will be Ken Clarke.
Of course the cuts are pure Thatcher from the textbook of Milton Friedman and Keith Joseph. ts the way the Tory brain works.

Fri, 2010-12-31 12:11 — allan sayers (not verified)

same old tory line all the time. Labour did not get us into the banking crisis. Bankers did. The question is do we have to take so much pain, so quickly and clearly the answer is no. If this was a business we would not cut so fast and recklessly unlesss of course you didnt care for the work force. This is purely idealogical even if Cameron doesnt believe so. The banking crisis has allowed the tories to instantly return to their norm of cut cut cut. Is it Cameron who is in charge.... Osborne, who has never had a job, wields enormous power and he is not going to suffer one little bit under any cuts..

Fri, 2010-12-31 12:21 — Arturo Bandini (not verified)

ST - It's the Tories' pals in the world banking system that created this mess. I'm sure you're delighted they're being let off the hook while we're all hanged on it.

Still, when they've moved the poor out of London to engineer election results and hidden themselves in their gated communities, you might just find you're out her with the rest of us.

The Right's greatest triumph has been conning people like you into thinking you are part of their gang and not simply a lackey.

Fri, 2010-12-31 12:34 — Shinsei67

One of Gordon Brown's Golden Rules was that debt to GDP shouldn't exceed 40%.

So these "ideological cuts" and desire for a "small government" are in total accordance with over ten years of Labour economic policy.

Fri, 2010-12-31 12:47 — gwenhwyfaer (not verified)

Why are those people, presumably Tories, who seem so approving of the cuts just as keen to attribute them to Labour?

Fri, 2010-12-31 13:23 — Lou (not verified)

Trouble with Cameron's practical desire to sort out this country's problems is that he isn't very practical at all.

A practical desire he may well define it as - it's a vague use of the english language at best - but whatever way he spins it, his desire to sort this country's problems out is through the practice of conservative political ideology, that's the only practical desire evident.

All his pre election talk was of ideological policies - the big society isn't the state quote spoke volumes as to where Cameron's political agenda was going to be.

Despite the current incumbents practical desire to make this anything but a Happy New Year, may I take the opportunity to wish you all a Happy New Year, best wishes for 2011 and here's to the practical purging of the Coalition from Government this year.

Fri, 2010-12-31 13:47 — Nick (not verified)

Of course Cameron's cuts are idealogical. If you look at all the so called 'cuts' he proposes, none of them bring about any immediate saving or deficit reduction. Child Benefit and Tuition Fee changes won't bring about any savings for years, it's long term policy suited to the crazy man's idealogical aims. The ones which hit first will be those which are aimed at the less well cushioned; he likes to deliver harmful blows.

Fri, 2010-12-31 14:12 — JohnRuddy

Nick,
Yes that was one of Gordon Browns golden rules - however, you've missed a bit off. It included the phrase "over the economic cycle". It is to be expected that it will be over 40% during recession and recovery. Just as it was under that level during the good times.

Fri, 2010-12-31 14:20 — DK (not verified)

Of course Cameron's cuts are ideological, and of course Labour has a terrible responsibility for our current mess: Cameron's ideology only extends that of Blair and Mandelson. Will Miliband disown the New Labour past, or do real leftists need to abandon Labour and form a new party?

Fri, 2010-12-31 14:31 — Lou (not verified)

Cameron - "We must ask ourselves as a country how we are allowing the radicalisation and poisoning of the minds of some young British Muslims who then contemplate and sometimes carry out acts of sickening barbarity"

Try looking at UK and Western foreign policy for your answers Dave.

Fri, 2010-12-31 15:20 — Alan W-G (not verified)

Please don't say Ken Clarke will be the first cabinet casualty - I've got money on the disastrous U-turning Gove to be first to go!

Fri, 2010-12-31 15:39 — ACMJ

Cameron's comments that he didn't come in to politics to make cuts are as laughable as Cameron claiming that he does not regard Nick Clegg to be a "joke " .
If Cameron didn't want to come into politics to make cuts , he wouldn't have made his adoration for Maragaret Thatcher so public , and nor would he have joined the Conservative party . It makes one wonder whether Cameron truely believes the total claptrap that he dishes out to the electorate , when he opens his mouth .

Fri, 2010-12-31 15:42 — Hugh Markey (not verified)

Sermon on the Mount. Well, I should jolly well hope so. Dave gives the impression he is our saviour. He'd better be. He's talked the talk, now let us see him walk the walk.
For a start, he can stop the name-dropping. Recently, at the Lord Mayor's Dinner, he referred to "an aged relative". Pure P G Wodehouse! As I recall, that bounder wasn't that loyal. A mouthpiece for the Third Reichm or was he just a simpleton like Bertie (Wooster). Of course, this comic novelist was married to an American and wrote some lyrics for Broadway shows. HIghly dubious fella. Wodehouse not Cameron.

Jeeves

Fri, 2010-12-31 16:03 — Callum

A good insight into the cuts. Cameron thinks he can justify his opinion by giving another opinion and the NS gave us facts.

Fri, 2010-12-31 16:47 — Dave Gould (not verified)

The hypocrisy of this article is absolutely staggering.

To try and prove spending cuts are ideaological, for the sake of the author's ideology, he quotes a bunch of mythical tax raising devices he doesn't understand and has merely copied from other people's ideological rants.

Yes, these taxes could be raised but it probably wouldn't make any difference (the 50% rate has made no difference to tax revenue).

We already have land taxes, it's called rates and council tax. The link says nothing about land taxes.

Low corporation tax attracts corporations here and stops them going to Ireland, which raises state income from corporation tax.

What would a genuine crackdown on tax avoidance look like? No details as usual, just a half-baked idea based on the ideological (emotional) notion that the rich aren't paying their fair share. They aren't, but outside of a Mugabe style land-grab, they never have done in any country.

Slightly better with the bank levy (a Coalition idea) but it would be 1% of the deficit at most.

A better bet would be slashing the threshold on inheritance tax. Could probably bring in £20bn there, a good 15% of the deficit.

Call this biased if you will but it seems most economists agree with the Coalition:
http://www.telegraph.co.uk/finance/financetopics/budget/7810116/Economis...

And if anyone thinks the state isn't an unbelievably bloated money sink, explain where all the extra spending Labour pumped in has gone.

In 2015, assuming the highly optimistic cuts go through, public spending will still be around 2007 levels. How ideological is that?

Lastly, what's the point of making ideological cuts when the Tories (and LibDems) know full well that Labour will just revert them in 2015 or 2020?

You'd be better off calling the timing of the cuts partisan. The economy is going to be much better off in 2015 when the next election will be, Labour will be looking very stupid for opposing every single cut but what they could point to is the clear electioneering timing where cuts end in 2014 and public spending is raised in real terms in 2015.

Fri, 2010-12-31 17:41 — demonax3

Couldn't we ask to cease the Tory cry of these trolls saying it's Labours fault. The Banksters and the criminals as part of their ideology are all Tory and they got un into this.

Fri, 2010-12-31 18:29 — Nick (not verified)

Dave Gould: It's a well known Tory trick to boost public spending in the dying year or so of their term. They did so under Major after years of reckless abandonment under Thatcher, the difference is the public are a lot wiser to it these days. Cameron's stupid message to the country today that all will be hunky dory was another reckless promise he'll never deliver on. Trust Dave the dodgy car salesman? ...not in a million years!

Fri, 2010-12-31 18:54 — Hal (not verified)

We now know, with hindsight, that Gordon Brown's 40% government debt-to-GDP rule was a mistake. Keeping government debt that low and expecting the private sector to do all the creation of capital led to under-capitalised banks.

Hard to say what the "right" ratio might be. I would guess around 100%, something like the historical average.

Sat, 2011-01-01 01:58 — drprometheus (not verified)

Whenever Cameron tries to explain the 'Big Society' think 'Small State'...

Sat, 2011-01-01 09:19 — ST (not verified)

Just out of curiosity, was the enormous expansion of the public sector which is now being rectified, not an ideological policy of the Labour party?

Sat, 2011-01-01 15:03 — Reginald-Fah-fah

Happy 2011 everyone! Bloody marvellous New Year Message from the great Prime Minister David Cameron!!!

I agree with 'Call Me Dave'
"This is a government led by people with a practical desire to sort out this country's problems, not by ideology."

Sat, 2011-01-01 18:36 — Hugh Markey (not verified)

What a 'wheeze'. Another indirect tax -soo democratic. The billionaire and the widow paying the same. Of course the billionaire's company may be skimming its VAT contribution or operating some merry-go-round VAT scam. Still, it's a scheme made in heaven. A Charity Tax! And the billionaire has the option of avoiding it. Naturally the widow has the same choice. However, just put a kitten or a little morsel of humanity in swaddling clothes on the marketing blurb and 'hey presto' the widow's mite is extorted. Naturally, we're all in this together! Of course, it's optional for some, or didn't you know?

Spin Meister

Sat, 2011-01-01 19:07 — Mike Thomas (not verified)

What a incredibly weak economic argument.

So is the opposite of wrecklessly over-borrowing then delaying paying it back non-ideological?

In other words, economic stupidity?

If the cap fits.

So it is not ideologically to spend the equivalent of our education budget on just paying the interest on our debts?

This is basic economic theory, look up opportunity cost and then come back here to argue that is somehow ideological?

Also, there is a wider element of morality at play here. Is it right and moral for our children to pay for the economic incontinence of their elders?

It is a deliberately rhetorical question.

Next, you also completely miss the point with the public sector.

They are currently unproductive and their productivity is 3% lower than it was in 1997.

So if you add up the £8 trillion spend since then(not invested), there is a £240bn productivity gap.

In other words, £240bn that was utterly wasted.

Next, capital investment budgets, Labour was going to cut these as well. Also, PFI is not capital investment, it is more debt on the balance sheet.

It is absolutely right that the public sector is trimmed, it is top-heavy, administratively bloated and it is simply not delivering the goods. Look at the UK performance in education and health and we are falling down the world's league tables.

Chucking money around doesn't fix problems, we have had to endure 13 years of that nonsense to test that assertion to destruction.