Osborne rules out further welfare cuts and tax rises as he targets Whitehall

The Chancellor reveals that he has already secured agreement from seven departments to cuts of up to 10 per cent and makes it clear that he's after more.

After reports at the weekend that he is struggling to secure agreement from cabinet ministers to any cuts in next month's Spending Review, George Osborne has taken the unusual step of touring the studios to reveal the progress he's made so far. On ITV's Daybreak, he announced that seven departments had "agreed provisionally" to cuts of up to 10 per cent, mentioning Justice, Energy and Communities by name (the others are reported to be the Foreign Office, the Cabinet Office, the Treasury  and Northern Ireland). He later added on BBC News that this meant he was now "about 20 per cent of the way there"

Today's Telegraph reports that Iain Duncan Smith has offered to cut welfare by another £3bn in order to protect spending on defence and the police, but Osborne made it clear that with the Lib Dems opposed to any further welfare cuts, this was not an option. "We've already accepted big reductions in welfare, including big reductions for this year, now we've got to look for savings in Whitehall, in government, in bureaucracy," he said. And he made it clear that this would include further cuts to the Home Office and Defence, despite the public protestations of Philip Hammond and Theresa May. While Osborne emphasised that he was "not going to do things that are going to endanger the security of the country, either at home or abroad", he added, "that doesn't mean you can't find savings in the way these big departments operate." In addition to dampening Tory hopes of further cuts to welfare, Osborne also signalled that had no plans to introduce further tax rises on top of those announced in the Budget. "I am in effect ruling it out, I'm looking for the money from Whitehall", he said. 

Challenged on why he was having a Spending Review at all, when he might not be in government for the period in question (2015-16), Osborne pointed out that "the financial year starts before the general election" and also revealed his underlying political motive. The review, he said, would raise the "very interesting question" of whether Labour "would match these plans". Should Labour fail to do so, Osborne will accuse them, as the Tories did in 1992, of planning a "tax bombshell" or more of the borrowing "that got us into this mess in the first place". After the Chancellor's pre-Spending Review report this morning, that is a dilemma Ed Miliband and Ed Balls will soon to have to confront. 

George Osborne arrives at media company Unruly, on April 25, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

Photo: Getty
Show Hide image

Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.