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4 December 2014

Leader: A conspiracy of silence over the austerity ahead

The problem the Chancellor now faces is that, after almost five years of emphasising the need for tough choices, the public is inclined to think the work of austerity is done. It is not.

By New Statesman

In June 2010, George Osborne addressed the Commons with what he called the “unavoidable Budget”. While the Conservatives castigated his Labour predecessor, Alistair Darling, for his alleged timidity, the Chancellor pledged to eliminate the structural deficit by the next election. Measured on his own terms, Mr Osborne has been a failure. He has made less of a dent in the deficit than the “Darling plan” he once derided would have made. The UK also lost its AAA credit rating, such a source of pride to Mr Osborne, for a year.

Yet at the same time the Chancellor has not been the ruthless axeman of popular caricature. He has shown flexibility by loosening his draconian targets when even he saw they were preventing a return to growth. The problem he now faces is that, after almost five years of emphasising the need for tough choices, the public is inclined to think the work of austerity is done. It is not.

While some on the right have criticised Mr Osborne’s cuts as puny, the effect on many of Britain’s poorest has been profound. Working-age benefits, both for those in and for those out of work, have been cut in real terms. The total benefit cap of £26,000 is an entirely artificial measure – political gimmickry masquerading as a plan for deficit reduction – which threatens to increase levels of child poverty. The “bedroom tax” offered many a stark choice – pay more rent or downsize – only for some then to discover there were no smaller properties available. And the rise in VAT to 20 per cent, contravening David Cameron’s pre-election pledge, is regressive. The Chancellor recently said that he had “no plans” to increase it – which is also what he said in 2010.

The sobering truth is that, if Mr Osborne is to succeed in his new target of eliminating the deficit by the end of the 2017-18 fiscal year, the most brutal cuts are still to come. In this climate the Conservatives’ pledge of £7.2bn of tax cuts in the next parliament is either callous or unbelievable. It is being floated to exploit the party’s lead on economic credibility rather than as a serious economic plan.

There is a broader point. All leading politicians are engaged in a conspiracy of silence about the economic decisions that lie ahead. The Conservatives fail to acknowledge that, with no inclination to cut the education or health budgets (rightly) and perks for wealthy pensioners deemed too electorally important to touch (wrongly), further cuts would ravage local government, environment agencies and the justice system. Paul Johnson from the independent Institute for Fiscal Studies believes that unprotected services would have an average cut of a third in real terms between 2010 and 2020. “Those really are staggeringly big cuts,” was his laconic verdict.

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As for Labour, its underlying analysis – that Britain has a structural problem with its low-wage economy, which has required inadequate pay to be topped up by the state – is commendable. The party is also right to say that it would borrow more to fund capital investment – public-sector net investment is just 1.5 per cent of GDP today, compared with 3.3 per cent in 2010.

Nevertheless, Labour remains shy, declining to outline what cuts it would impose if it were to stick to its slightly more relaxed deficit reduction plan. Measures that increase the burden on the wealthiest in society, through wealth taxes and reinstating the 50p rate, are socially just – but they will make only a small dent in the deficit.

Most disappointingly, Labour has decided to match the Conservatives in an arms race on immigration. This is more than just a cynical attempt to tackle the rise of Ukip; it also threatens to have dire economic consequences.

Immigrants tend to be younger and better educated than the native population, which is rapidly ageing. Here is a truth no politician will utter: if Britain is to maintain a welfare state that adequately looks after those most in need, its current economic model demands more immigration.

Politicians continue to believe they can manipulate the public – the Chancellor has just announced a pre-election boost in road-building that will, conveniently enough, benefit a number of marginal Tory and Lib Dem constituencies. As politicians lament the public’s lack of trust in them, it is worth remembering: sometimes they do little to earn it.