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1 February 2011

The right urges Osborne: make even bigger cuts

The economic right has responded to negative growth by pushing for larger cuts.

By George Eaton

While the left has responded to last week’s disastrous (lack of) growth figures by calling for a reduced level of spending cuts, the right has responded by calling for even larger cuts.

The Centre for Policy Studies today argues for “more draconian cuts” to provide “a better base for future growth and to enable a faster rebalancing towards the private sector”. Elsewhere, in the Times (£), Jon Moulton, the founder and managing partner of Better Capital, writes: “Yes, there are real cuts taking place. But the question is, given the dire economic state we are in, are they large enough?”

He concludes: “[T]here is an alternative: to take more pain now and get the deficit down more quickly.” Both falsely assume that the cuts will raise confidence (in fact, as Nick Clegg admitted, they are having a “chilling effect”) and that excessive state spending is “crowding out” private investment.

They will find an ally in John Redwood, who has consistently argued that “the cuts” are a myth. It is true, as he frequently notes, that total spending will rise from £665.4bn in 2009-2010 to £752.9bn in 2015-2016. But the claim that the cuts are non-existent is only achieved by the old trick of measuring public spending in cash terms, rather than as a percentage of GDP.

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If we use the latter measure, the true picture emerges. The cuts will reduce spending from 47.4 per cent in 2009-2010 to 39.3 per cent in 2015-2016, a level last seen in 2003-2004.

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Meanwhile, Osborne is under simultaneous pressure from the right to slash taxes. Boris Johnson led the charge in an interview with the Daily Telegraph, calling for the government to “set a course for low tax” and for the abolition of the 50p tax rate. Today, as Andrew Sparrow reports, two Conservative MPs who sit on the Treasury select committee have publicly called for lower taxes.

Mark Garnier said that at the end of the parliament there would be “a very strong case for reducing that top rate of income tax to 40 per cent”. And Andrea Leadsom called for “some statement on the direction of travel towards lower taxes for individuals as an incentive to work”.

Should the first-quarter growth figures (published on 27 April) show little or no improvement, the clamour for larger tax cuts and larger spending cuts will grow. The politics of austerity are about to get even more uncomfortable for George Osborne.