To avoid further cuts, Osborne should raise taxes and reduce benefits

Rather than cutting over-stretched public services, the Chancellor should raise more from the wealthy through tax rises and cuts to universal benefits.

In the build-up to the Budget, most of the debate has been on the here and now, with the Chancellor being urged to boost growth through capital investment or temporary tax cuts. But this will also be a critical Budget for the medium term as George Osborne sets the public spending envelope for 2015/16 ahead of June’s spending review. There’s still time for him to avert another historic public spending mistake.

As part of the Fabian Society Commission on Future Spending Choices we analysed the impact of Osborne’s existing plans as implied by the 2012 Autumn Statement. On the basis of his current commitments to protect spending on the NHS, schools and international development, in 2015/16 we can expect another cut to unprotected public services of £5bn. The services affected include defence, police, social care and local government. Across unprotected departmental spending this would be a real-terms cut of 3.8 per cent compared to 2014/15.

The public services at risk have already been the worst hit by austerity and a further year of reductions would bring the total real cut to these areas since 2011/12 to £36bn or 22 per cent. It is surely unwise to plan further cuts to those budgets that have been hit the most already. Indeed, many areas will face significant pressures even if their budgets stand still in real terms, while an aggregate freeze would still mean cuts to many budgets to make space for growth in other priority areas.

The £5bn pounds required to prevent these further cuts could be found in four ways: cutting the NHS, schools and international development; slowing the pace of deficit reduction and increasing the stock of debt; further cuts to social security; or raising taxes.

Cutting spending on the NHS and schools is not attractive given the rising demand both of these areas face as a result of our ageing population and the new baby-boom. International development spending plans, meanwhile, are part of a long-term international commitment which has cross-party support.

Increasing debt to pay for everyday public service spending is also unattractive. On the current economic outlook, more debt-financed spending is needed but to stimulate the economy today through temporary stimulus and capital investment, not for ordinary government activity. Extra borrowing may also be required in the medium-term if economic growth comes in below the OBR’s previous projections, which are likely to be downgraded this week. But this would merely be to achieve George Osborne’s existing spending plans. Since a future government may well need to push its deficit reduction programme beyond 2017/18 simply because of the state of the economy, it would be unwise to plan for extra discretionary debt-funded spending too.

Instead, the £5bn to prevent further public service cuts should be found through tax rises and social security cuts for 2015/16. These changes should be pre-announced but only implemented if the economy has returned to growth by then (and there is nothing to stop this policy sitting alongside temporary tax cuts in the meantime).

Choices regarding tax and welfare changes should be taken together, since they are both financial transfers between citizens and government. Decisions should be made from the perspective of who has the greatest capacity to absorb changes. This means that any reforms should target the top half of the income distribution, who both have the broadest shoulders and have escaped lightly from austerity until now. There is also a case for increasing the burden placed on older people. Relatively speaking, retired households are lightly taxed and have not suffered welfare cuts to the extent of younger families.

In isolation the idea of up to £5bn of tax rises may appear alarming (it is equivalent to 1 per cent on VAT or income tax). But at present the brunt of deficit reduction is being born by public spending, not tax rises. On current plans, the chancellor is expecting to close the deficit through a combination of 85 per cent spending cuts and 15 per cent tax rises, compared to his original 2010 plan for 27 per cent to come through tax rises and Alistair Darling’s plans of 30 per cent.

So it’s time to shift the balance of deficit reduction away from public service cuts. The good news is that another year of public service cuts can be prevented at the ‘low’ cost of £5bn. The Chancellor should announce 2015/16 tax and benefit plans to generate this money from those who can bear the burden best.

Chancellor of the Exchequer George Osborne leaves 11 Downing Street on March 18, 2013 in London. Photograph: Getty Images.

Andrew Harrop is general secretary of the Fabian Society.

Getty Images.
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Jeremy Corbyn's speech on terrorism will do him more good than harm

The Labour leader's criticism of police cuts and western foreign policy will resonate with voters.

The election campaign, if there was any doubt, has resumed. In his speech responding to the Manchester attack, Jeremy Corbyn did not limit himself to expressions of sympathy and solidarity. He squarely targeted Theresa May on her home turf: policing and security.

The Conservatives' repeated warning is that Corbyn is a "threat" to his country. But the Labour leader countered that only he could keep it "safe". Austerity, he declared, "has to stop at the A&E ward and at the police station door. We cannot be protected and cared for on the cheap." May, having been warned by the Police Federation while home secretary of the danger of cuts, is undoubtedly vulnerable on this front. Under Labour, Corbyn vowed, "there will be more police on the streets" (despite Diane Abbott's erroneous arithmetic), while the security services would receive whatever resources they need.

Corbyn swiftly progressed to foreign policy, the great passion of his political life. Though it is facile to reduce terrorism to a "blowback" against western interventionism (as if jihadists were Pavlovian dogs, rather than moral agents), it is blinkered to dismiss any connection. As Corbyn noted: "Many experts, including professionals in our intelligence and security services have pointed to the connections between wars our government has supported or fought in other countries, such as Libya, and terrorism here at home" (the Tory-led Foreign Affairs Select Committee is among those who agree).That the former Stop the War chair has long taken this view absolves him of the charge of crude political opportunism.

Corbyn was also more careful than his pre-briefed remarks suggested to caveat his criticisms. He emphasised: "Those causes certainly cannot be reduced to foreign policy decisions alone. Over the past fifteen years or so, a sub-culture of often suicidal violence has developed amongst a tiny minority of, mainly young, men, falsely drawing authority from Islamic beliefs and often nurtured in a prison system in urgent need of resources and reform.

"And no rationale based on the actions of any government can remotely excuse, or even adequately explain, outrages like this week’s massacre."

But he maintained his central charge: western intervention has made the world more dangerous, not less. "We must be brave enough to admit the war on terror is simply not working," he said. "We need a smarter way to reduce the threat from countries that nurture terrorists and generate terrorism."

Though Corbyn's arguments have appalled Conservatives (and some in Labour), they are ones that will likely find favour among the public. Polls have consistently shown that most voters oppose western adventurism and believe it has endangered the UK. Corbyn's words will resonate among both the anti-interventionist left and the isolationist right (this is, after all, a country which has just voted to retreat from even its closest neighbours).

The speech, given at 1 Great George Street (in the room where Ed Miliband gave his resignation address), was marred by Corbyn's refusal to take questions. But it was unarguably well-delivered. "Let’s have our arguments without impugning anyone’s patriotism and without diluting the unity with which we stand against terror," he warned in a pre-emptive strike against the Conservatives.

Corbyn's decision to give an overtly political speech four days after the Manchester attack is being widely described as a "gamble" or even a profound error. But the election will now rightly focus more closely on the issue of security - nothing should be beyond democratic debate.

Many of Corbyn's life-long stances, such as unilateral disarmament, do not find favour with the electorate. But there was little in his speech today that the average voter would contest. The Conservatives will hope to turn the heightened security debate to their advantage, ruthlessly quoting Corbyn against himself. But on this front, as on others, the Labour leader is proving a tougher opponent than they anticipated.

George Eaton is political editor of the New Statesman.

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