£6bn cuts – long-term pain for short-term gain?

Schools funding, Sure Start children’s centres and 16-19 education were spared the axe this morning as George Osborne and David Laws announced £6bn of cuts.

Earlier this morning, The Chancellor and Chief Secretary to the Treasury detailed £6.243bn of cuts in public spending that will, in the most part, take place in this financial year. As promised, departments of health, international development and defence saw their budgets protected. In addition, schools funding, Sure Start children’s centres and 16-19 education were also spared the pain of budget reductions. As a consequence the axe fell harder on a number of other departments, including business (£836m), communities and local government (£780m) and education (£670m).

Both men were at pains to point out that the majority of the savings would come from ‘reducing waste’, including over £1bn from less government advertising, use of consultants and travel allowances. The cancelling or renegotiation of contracts through more effective procurement is also due to save nearly £2bn, with £600m coming from a ‘bonfire of the quangos’.

However there are less politically salient casualties of the cuts. The abolition of the popular Child Trust Fund will save just over £300m, and the £120m generated by a freeze in civil service recruitment will hit graduate job-seekers particularly hard.

Credit must go to the Treasury team for delivering these savings in what appears to be a relatively equitable fashion across the public sector. Whether or not these cuts will help or hinder immediate economic recovery is anyone’s guess; however, it is clear that the motivation for today’s announcement is primarily to send a clear signal to international markets that this government is focused on reducing the deficit as quickly as possible, an objective that both parties now subscribe to despite pre-election disagreement.

This raises a very important question: to what extent do today’s cuts, and indeed the far deeper and more painful ones to come, reflect a view of how to rebalance Britain’s economy and find the future sources of economic growth, or alternatively simply represent a short-term approach to placating markets and particular political ideology? Given the significant cuts in the business budget, along with the squeeze in higher education spending with no apparent protection of science funding, it is not clear that these cuts are part of a broader economic plan for delivering the jobs of tomorrow.

Simply opposing government action on the deficit would be disingenuous and counter-productive. The focus for any responsible, strong opposition should be on ensuring that when cuts are deliberated or announced, their impact on the broader economy is carefully assessed. The challenge, but also the opportunity, for the Left is to develop and articulate an economic vision that is deliverable in today’s fiscal reality. On the limited evidence of today, the government is yet to decide on its own.

Editor’s update 15.28

Some other interesting takes on today’s news:

The ippr have put a strongly worded statement on the child tax fund. Co-Director Lisa Harker says:

“Scrapping the Child Trust Fund is a major backward step away from achieving greater equality in Britain. Campaigners have fought long and hard to establish the principle that the state should help families build up an asset to give all children a fair start as they enter their adult life. The spark provided by the Child Trust Fund has substantially increased parental saving since it was created in 2002 and meant children born since then will have a pot of money to help them get on in life when they reach 18. Now tomorrow’s generation are being asked to pay for the mistakes of today’s. We strongly urge the government to reconsider this step for the sake of building a fairer Britain.”

At Labour Uncut, Jonathan Todd argues that:

“In addition to decisions on growth, there are many decisions to be made on the best mix of reduced spending and increased taxation in deficit management. We should put more emphasis on taxation than the coalition, while being redistributive and imaginative, in terms of what we propose to tax. There are, for example, cases for revisiting land and carbon taxation, as Philippe Legrain has argued.”

20 Responses to “£6bn cuts – long-term pain for short-term gain?”

  1. Bham Labour Students

    RT @leftfootfwd: £6bn cuts – long-term pain for short-term gain? http://bit.ly/a0eqUH

  2. Jonty Olliff-Cooper

    longer term question is about where we find good growth for the next 20 years, not just 2 years. nef has some interesting work, but poorly sold. http://www.neweconomics.org/

  3. SadButMadLad

    Its worth remembering that the £6 billion is only 0.8% of overall government spending so only a minor prick and not a huge pain – for the whole country.

  4. Sun, Sun, Sun … « @Number 71

    […] are taking more than their fair share. In particular, and as a good post at Left Foot Forward points out, cutting the Future Jobs Fund seems to be an example of short-term thinking at the […]

  5. Fat Bloke on Tour


    Sniffy is playing to the gallery with these cuts.
    Nothing to do with economics just a case of playing politics to show that he is a real dog boiler and is planning to do something about the deficit.

    The savings net out to £5.75bill, the effect on the deficit will be a lot less. The headline figure will mean less demand, less economic activity and less taxes paid to the Treasury.

    Looking at the longer term the real saving will be in the region of the £3-4bill needed to finance next years tax cut on employers NIC. Therefore he is cutting demand at a time of economic turbulence and anaemic growth to fund a tax cut one year in the future.

    The big issue here is that taxes need to go up to kick start the velocity of money in the economy. We are suffering from a lack of demand not high taxes at the moment. The NIC reduction will benefit the private sector surplus not demand in the economy. Tax and spend is probably a bit counter intuitive but it is the way forward especially if it is used in targeted investment for the future.

    Putting the savings figure into a historical context shows just how insignificant it is in terms of the deficit. Looking at the figures for 09/10 the Treasury got their forecast on the deficit £22bill wrong.
    In fact their performance on this has been close to shambolic over the past year, the more info they had the less accurate they got.

    They put it up by £3bill in November and now 6 months later it is £22bill lower, including a drop of £9bill in the space of one month. Some going and you have to ask if they were trying to stop AD getting more creative on the fiscal stimulus front?

    Consequently £5.75bill of savings is nothing but mood music in the face of a growing storm. The possibility of a double dip recession is the big issue in the real world, but in the upper middle class the new orthodoxy has the deficit as the big problem.

    Sniffy and his glove puppet are the public face of this orthodoxy and they both look positively entranced by the task of stopping the recovery and taking money from the poor.

    There is a lot of shroud waving at the moment as the establishment seek to re-cast public services so that they will have to pay less tax in the future. Things are not as bad on the deficit front as they are portrayed, the biggest issue at the moment as mentioned above is the double dip recession and taking £5.75bill taken out of government spending will do nothing to help in this area.

    The big question is what will Sniffy do if we do fall into a second recession?
    The cost to get us out will be a lot bigger than £5.75bill.

    The Thatch2 recession had the deficit peak at 8.7% of GDP after a difficult but in historical terms fairly mild downturn. The peak to trough GDP fall was in the region of 2%.

    The Credit Crunch has so far had the deficit peak at 11.1% of GDP after the worst recession in 70 years where the UK banking system has suffered a nervous breakdown and need unprecedented support to see it through and we had a peak to trough GDP fall of 6.2% .

    The left need to argue against the new dog boiling orthodoxy, not try and sandblast a few rough edges off it to make it more palatable. What we have we should hold not give it away to placate the great unwashed of the bond markets.

Comments are closed.