Leader: We need a principled defence of the public realm and the competent state

In an attempt to achieve an economically worthless but politically valuable budget surplus, cuts to public services will continue even once the structural deficit has been eradicated – this is unworkable.

George Osborne and William Hague at the Conservative Party conference in 2011. Photo: Getty.

When David Cameron and George Osborne first entered office, they presented austerity as a regrettable necessity to reduce the largest budget deficit in peacetime history (11 per cent of GDP). In his 2010 New Year message, Mr Cameron said: “I didn’t come into politics to make cuts ... 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.” But in his Lord Mayor’s banquet speech last month, he unambiguously abandoned this stance, speaking of his ambition to build a “leaner” state – “Not just now, but permanently.”

Mr Osborne’s Autumn Statement made it clear what this will entail. In an attempt to achieve an economically worthless but politically valuable budget surplus, cuts to public services will continue even once the “structural deficit” has been eradicated. The result, as the Office for Budget Responsibility stated, is that day-to-day spending will fall to 16 per cent of GDP by 2018-19, the lowest level since records began in 1948.

That this is unworkable was demonstrated by the OBR’s accompanying forecast that health, social care and education will alone account for 12.9 per cent of GDP by 2017-18, leaving just 3.1 per cent for all other services, including housing, transport, defence and the police. Unless the Chancellor intends to privatise the armed forces (defence represents 2.5 per cent of GDP) and abolish the foreign aid budget (0.7 per cent), his target will be not be met. The likelihood is that the next government, in common with all of its predecessors, will raise taxes in the year immediately following the general election. Mr Osborne may insist that the remainder of the deficit-reduction programme will be achieved through spending cuts alone, but he also stated in 2010 that he had “no plans” to raise VAT.

If the Chancellor’s vision is far-fetched, he could still achieve a dramatic reduction in the size and scope of the state’s activities.The Beveridgean model of universal welfare will be replaced by a US-style safety net designed to support only the “deserving poor”. Government will relinquish what remains of its duty to provide affordable housing and higher education, with grants for low-income students replaced by larger loans and tuition fees increased far beyond £9,000. In parts of the country, publicly-funded libraries, swimming pools, youth centres, museums and parks will cease to exist as local authority budgets are more than halved. The social-democratic state that survived the Thatcher years will truly be rolled back.

Faced with this Randian project, Labour and the Liberal Democrats have a duty to provide a principled defence of the public realm and the competent state. But in more than three years of austerity, neither has come close to doing so. Nick Clegg has pre-emptively signed his party up to further Conservative cuts until 2019, while Ed Miliband and Ed Balls have pledged to match Mr Osborne’s current spending totals in the first year of the next parliament.

A much-needed debate about how to fund the state’s activities in an age of reduced growth and stagnant living standards has not taken place. If the Chancellor’s scheduled pace of cuts is to be avoided, around £12bn of tax rises will be required. Measures such as the reintroduction of the 50p income-tax rate, or the imposition of a mansion tax (which Labour has said it would use to fund the reintroduction of the 10p tax rate) do not even come close to filling the fiscal gap.

Mr Osborne’s declaration that the welfare state is “unaffordable” is not one of fact but one of ideology, reflecting his predilection for low taxes. For a wealthy country such as Britain, there are alternative paths available. But, too often, politicians of all parties have encouraged the belief that the UK can enjoy Nordic levels of provision with US levels of taxation. If this was not the case during the boom, it is certainly not the case after the bust. Unless Labour and the Liberal Democrats are prepared to argue for a new model of the state to sustain the services that we collectively value, the danger is that voters, like Mr Osborne, will conclude that there is no alternative.