Osborne's plan to permanently shrink the state is not necessary

The Chancellor's ideological cuts are but one route to sound public finances. Alternatives, centred around investment, are available.

Yesterday, George Osborne’s neoconservative plans were laid bare. Hidden amid all the other numbers, the Treasury announced a further year of austerity spending for 2018/19: the ninth in a row, if you’re still counting. But this Autumn Statement was different, because it was the first where Osborne called for a permanent, structural shrinking of the state.

Until now, each fiscal announcement since 2009 has sought to return the public finances to roughly where they were before the crash. Now, out of choice, the Chancellor is proposing that public spending should fall, as a share of national income, to far below its pre-crisis level - and indeed well below the trend since World War II. 

Back in 2007, expenditure stood at 40.5 per cent of national income. It increased rapidly to 47 per cent by 2009, mainly due to the economy shrinking, rather than rising spending. Ever since, the Treasury has been clawing its way back towards Labour’s level of spending and in March the plan was to reach the pre-crisis benchmark by 2017. In the Autumn Statement everything changed and without any announcement the Chancellor pencilled in a cut to 38 per cent of GDP in 2018.

In times past, when spending slipped this low it was because the economy was roaring. For example in the late 1990s, Gordon Brown and Tony Blair were caught off guard, with inherited Conservative spending plans and a booming economy. This time is different; the economic projections are far from impressive and the strain of shrinking the state is to be borne by spending restraint alone.

Turning to the detail, in 2016 and 2017 the plan is 'more of the same': total real spending is to fall at the same pace as from 2011 to 2015 (around half a per cent a year). Then, on top of seven years of cuts, spending in 2018 is to be frozen, even though economic growth is projected to stand at 2.7 per cent.

If implemented, these plans would lead to the end of public services as we know them. By 2018 spending on services would be almost one-fifth lower, even compared with today. And if the government continued to protect areas like the NHS, international development and schools, other departments would face cuts of around two-fifths. Many services will be spending less than half what they did ten years previously. The only option for limiting this damage would be more deep welfare cuts, and even the coalition has been struggling to find many of those, which don’t hurt pensioners.

The most wilfully counterproductive aspect of the Treasury plan is perhaps its proposal for public investment. Yesterday the OBR revised down its expectations for business investment as a driver of recovery, suggesting that public investment is needed more than ever. But for the two years after the election it is to be flat in real terms. This is a further decline, as a share of GDP, and a further restraint on growth.

None of this is inevitable or necessary. In October, the Fabian Society Commission on Future Spending Choices proposed another way. We argued for a significant boost to public investment and for overall spending to rise after 2015 by one per cent a year for two years. This would take spending as a share of national income to the pre-crash benchmark of around 41 per cent of GDP. After that, expenditure should return to trend and match annual rises in GDP.

The Fabians’ proposed spending path is totally compatible with sustainable public finances but diverges hugely with Osborne’s spending plans. By 2018 there would be almost £40bn more to spend, enough to turn Osborne’s huge cuts to public services into a freeze. There would still be tough spending decisions to make, but meltdown could be avoided.

This begs the question: how can any MP who values the public sector can remain silent? One suspects many Liberal Democrats simply don’t understand what the coalition’s post-2015 plans entail. It is not just Labour, but the Lib Dems too, who must define an alternative, so that the Tories do not set the terms of the fiscal debate as the general election draws near.

Osborne’s ideological cuts are but one route to sound public finances and many others are available. We do not need to deliberately 'overshoot' pre-crisis spending and permanently shrink the size of the state.

George Osborne and Danny Alexander leave the Treasury for the House of Commons yesterday. Photograph: Getty Images.

Andrew Harrop is general secretary of the Fabian Society.

Daily Mail
Show Hide image

Who "speaks for England" - and for that matter, what is "England"?

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones.

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones. It trotted out Leo Amery’s House of Commons call from September 1939, “Speak for England”, for the headline on a deranged leader that filled a picture-free front page on David Cameron’s “deal” to keep Britain in the EU.

Demands that somebody or other speak for England have followed thick and fast ever since Amery addressed his call to Labour’s Arthur Greenwood when Neville Chamberlain was still dithering over war with Hitler. Tory MPs shouted, “Speak for England!” when Michael Foot, the then Labour leader, rose in the Commons in 1982 after Argentina’s invasion of the Falklands. The Mail columnist Andrew Alexander called on Clare Short to “speak for England” over the Iraq War in 2003. “Can [Ed] Miliband speak for England?” Anthony Barnett asked in this very magazine in 2013. (Judging by the 2015 election result, one would say not.) “I speak for England,” claimed John Redwood last year. “Labour must speak for England,” countered Frank Field soon afterwards.

The Mail’s invocation of Amery was misconceived for two reasons. First, Amery wanted us to wage war in Europe in support of Hitler’s victims in Poland and elsewhere and in alliance with France, not to isolate ourselves from the continent. Second, “speak for England” in recent years has been used in support of “English votes for English laws”, following proposals for further devolution to Scotland. As the Mail was among the most adamant in demanding that Scots keep their noses out of English affairs, it’s a bit rich of it now to state “of course, by ‘England’. . . we mean the whole of the United Kingdom”.

 

EU immemorial

The Mail is also wrong in arguing that “we are at a crossroads in our island history”. The suggestion that the choice is between “submitting to a statist, unelected bureaucracy in Brussels” and reclaiming our ancient island liberties is pure nonsense. In the long run, withdrawing from the EU will make little difference. Levels of immigration will be determined, as they always have been, mainly by employers’ demands for labour and the difficulties of policing the borders of a country that has become a leading international transport hub. The terms on which we continue to trade with EU members will be determined largely by unelected bureaucrats in Brussels after discussions with unelected bureaucrats in London.

The British are bored by the EU and the interminable Westminster arguments. If voters support Brexit, it will probably be because they then expect to hear no more on the subject. They will be sadly mistaken. The withdrawal negotiations will take years, with the Farages and Duncan Smiths still foaming at the mouth, Cameron still claiming phoney victories and Angela Merkel, François Hollande and the dreaded Jean-Claude Juncker playing a bigger part in our lives than ever.

 

An empty cabinet

Meanwhile, one wonders what has become of Jeremy Corbyn or, indeed, the rest of the shadow cabinet. The Mail’s “speak for England” leader excoriated him for not mentioning “the Number One subject of the hour” at PM’s Questions but instead asking about a shortage of therapeutic radiographers in the NHS. In fact, the NHS’s problems – almost wholly caused by Tory “reforms” and spending cuts – would concern more people than does our future in the EU. But radiographers are hardly headline news, and Corbyn and his team seem unable to get anything into the nation’s “any other business”, never mind to the top of its agenda.

Public services deteriorate by the day, George Osborne’s fiscal plans look increasingly awry, and attempts to wring tax receipts out of big corporations appear hopelessly inadequate. Yet since Christmas I have hardly seen a shadow minister featured in the papers or spotted one on TV, except to say something about Trident, another subject that most voters don’t care about.

 

Incurable prose

According to the Guardian’s admirable but (let’s be honest) rather tedious series celeb­rating the NHS, a US health-care firm has advised investors that “privatisation of the UK marketplace . . . should create organic and de novo opportunities”. I have no idea what this means, though it sounds ominous. But I am quite certain I don’t want my local hospital or GP practice run by people who write prose like that.

 

Fashionable Foxes

My home-town football team, Leicester City, are normally so unfashionable that they’re not even fashionable in Leicester, where the smart set mostly watch the rugby union team Leicester Tigers. Even when they installed themselves near the top of the Premier League before Christmas, newspapers scarcely noticed them.

Now, with the Foxes five points clear at the top and 7-4 favourites for their first title, that mistake is corrected and the sports pages are running out of superlatives, a comparison with Barcelona being the most improbable. Even I, not a football enthusiast, have watched a few matches. If more football were played as Leicester play it – moving at speed towards their opponents’ goal rather than aimlessly weaving pretty patterns in midfield – I would watch the game more.

Nevertheless, I recall 1963, when Leicester headed the old First Division with five games to play. They picked up only one more point and finished fourth, nine points adrift of the league winners, Everton.

 

Gum unstuck

No, I don’t chew toothpaste to stop me smoking, as the last week’s column strangely suggested. I chew Nicorette gum, a reference written at some stage but somehow lost (probably by me) before it reached print.

Editor: The chief sub apologises for this mistake, which was hers

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle