Why Osborne's cuts aren't "soft"

The misleading claim that Osborne is only cutting spending by one per cent a year.

Supporters of George Osborne's economic strategy have made it their mission to convince the world that his cuts are not harsh, savage or draconian but are in fact "soft", "mild" and "insignificant". It's a smart tactic designed to make Labour's opposition to the cuts look hysterical and economically deluded.

The most prominent and articulate exponent of this view is Spectator editor Fraser Nelson. In a blog published yesterday, he wrote: "Osborne's cuts aren't harsh or drastic: they're mild and probably insufficient. There's almost no organisation on the planet that agrees with Balls that cuts of less than 1 per cent a year are too harsh and too fast -- he ends up looking like a loser."

Nelson's figures aren't wrong - Osborne really is cutting spending by just 0.6 per cent this year and by just 3.7 per cent across this Parliament. But they are deeply misleading. The figure for total cuts includes non-discretionary spending such as welfare benefits (the "automatic stabilisers" Osborne recently referred to) and debt interest, masking the true extent of the coaliton's squeeze on public services.

The Treasury table below, which looks at departmental spending in isolation, shows what all the fuss is about. The Home Office is being cut by 25 per cent (see the final column). Education is being cut by 11 per cent. Transport is being cut by 15 per cent. The Foreign Office is being cut by 28 per cent.

The total cut to departmental spending is 11 per cent, the largest, as the IFS has noted, since 1945. If we strip out the NHS and International Development - the ring-fenced departments - the total cut is 19 per cent.

I should add that higher inflation means that the cuts will be even worse. The NHS, for instance, which was due to receive a small real-terms increase, will now suffer a small real-terms cut (the reason why it was so foolish for Cameron to "guarantee" last week that spending would rise).

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Another tactic beloved of the right (most notably John Redwood) is to point out that spending, in defiance of Osborne's cuts, continues to rise. Gordon Brown's government spent £50.6bn in May 2010 but Cameron's splashed £54.1bn last month. What's more, the latest Treasury figures show that total state expenditure, which stood at £669.7bn in 2009-10, will be £743.6bn by 2014-15. The cuts are all in the left's head.

But the claim that the cuts are mythical is only achieved by the old trick of measuring public spending in cash terms, rather than as a percentage of GDP. The latter is by far the more sensible measure. At times of economic expansion, it is only reasonable to assume that some of the proceeds of growth will go towards improving public services, and public-sector inflation is typically higher than the average growth in prices.

If we look at public spending as a proportion of GDP, the true picture emerges. The cuts will reduce public spending from 47.6 per cent of GDP in 2010/11 to 41.0 per cent in 2014/15. For many on the right, this is still an unacceptably high level of expenditure. But one can hardly deny that it represents a substantial reduction in the scope and size of the state's activities.

Rather than hiding behind misleading figures, it would be more intellectually honest of the right to make the case for Osborne's cuts, red in tooth and claw. Once the coalition's squeeze is complete, their statistical conjury won't fool anyone.

George Eaton is political editor of the New Statesman.

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Theresa May's big thinker - an interview with George Freeman

The Conservative policy board chair on the meaning of Brexit, state intervention and whether "Mayism" exists.

Theresa May’s three months as Prime Minister have been marked by ruthless changes of both personnel and policy, from grammar schools to fiscal targets. The man tasked with overseeing the latter is George Freeman, a newly bearded 49-year-old who jokingly describes himself as “a designated thinker”.

“It’s a huge privilege,” Freeman told me when we met recently in Westminster. “As [May] has indicated, she’s determined to open up the policymaking process to good ideas from a much wider pool.”

After entering parliament as the MP for Mid Norfolk in 2010, Freeman distinguished himself as one of the most intellectually energetic Tory MPs. He founded the 2020 group of Conservative modernisers and became the first ever life sciences minister in 2014. Before this, he had worked for 15 years as a biotech entrepreneur.

Politics is in his blood. The Liberal prime minister William Gladstone was his great-great-great-uncle and Mabel Philipson, the first female Conservative MP, his great-aunt. Yet Freeman attributes his reformist zeal to the belief that “with privilege comes responsibility”. He boarded at Radley College after his parents, both alcoholics, divorced and has spoken of his “emotionally damaged” childhood.

It is unsurprising that May, confronted by the greatest policy challenge since 1945 – EU withdrawal – has called on his services. The chair of the Prime Minister’s policy board, to give Freeman his official title, was a passionate Remainer but told me “we are now all Brexiteers”. The “Brexit roar”, he explained, was “a mixture of very deeply felt concerns and complaints about globalisation, powerlessness and the growing gap between London and [other] places . . .

“There’s an understanding that if we simply delivered Brexit, and didn’t tackle the rest, we would only have dealt with some of the problem.”

His ambition was “to do for our generation what Disraeli did in the 19th century, in understanding that the extraordinarily challenging pace of franchise extension was also a huge opportunity to harness and fashion a New Model Conservative Party”.

Besides abandoning the surplus target (“to boost growth and investment in infrastructure”), Freeman cited welfare policy as a point of departure. The government would “better differentiate” between changes in the welfare budget and systemic reform – a division that May believes was eroded by George Osborne.

The Prime Minister underlined her commitment to industrial strategy by naming a new department after it. But what does it mean? “I think there is a recognition that we are embracing something unrecognisable from the failed ‘beer and sandwiches’ interventionism of the Sixties and Seventies,” Freeman said. “Twenty-first-century Conservative industrial strategy is about backing our science, innovation and knowledge economy, and other sectors where we have serious global leadership.” He spoke of “stepping in where only the state can”, citing the publicly funded Diamond Light Source synchrotron facility, which he recently visited with the astronaut Tim Peake. The government must be not merely “pro-enterprise”, but “more enterprising”.

May has endured her heaviest dissent over education, and Freeman was notably lukewarm about the idea of new grammar schools. “As well as her position” on the latter, he emphasised, “the Prime Minister set out a much broader vision”. Asked whether he understood MPs’ objections to academic selection, he said “there will be all the usual consultation and discussions through parliament about specific measures”.

The Prime Minister has entered office with greater ideological definition to her thinking than David Cameron, who struggled to reconcile his early vision with austerity. Can we speak of “Mayism”? “I’m not sure the ‘ism’ is helpful or appropriate at this stage. The Prime Minister is very strongly driven by her conservative values, and converting those values into effective policies to tackle the challenges we face. I think we have to wait for the judgement of history to define the ism.”

Freeman is close to “DC” (as he calls Cameron) and praised his premiership. “I was very sorry to see him go. But in the end, given the way the referendum turned out, it was inevitable. I thought he handled that whole last week in the most exemplary way: typical of the man. In time, I think he will come to be recognised as a transformational leader who brought the Conservative Party to terms with modern Britain.”

He rejected the former education secretary Nicky Morgan’s suggestion that May would struggle to “reach into” the marginal seats that the Tories won under Cameron. “Theresa May is appealing widely across whole swaths of the country as a One-Nation leader,” he declared.

With the re-election of Jeremy Corbyn, Freeman said, “the centre ground of British politics, once dominated by Blair and New Labour, has been vacated . . . That is a huge opportunity for a One-Nation Conservative Party to demonstrate our relevance beyond our core vote to those around the country who have clearly felt so marginalised.”

Corbyn’s triumph “illustrates the extraordinary challenge for mainstream political parties in this age of asymmetric, post-Brexit politics . . . We now have to use the opportunity of incumbency in government to tackle the root causes of the insurgency that has taken out the Labour Party.”

Freeman acknowledged the risk that Labour’s divisions would produce an internal Tory opposition.

“It also creates a question for the Conservative Party. Will we turn in on ourselves and generate our own arguments, or unite and reach out into the space that Corbyn has vacated?” 

George Eaton is political editor of the New Statesman.

This article first appeared in the 29 September 2016 issue of the New Statesman, May’s new Tories