If Reform’s programme were implemented it would see government spending fall to 38.7 per cent - lower than under any Conservative government since the 1960s.
On the day that the right-wing Reform think tank set out their proposals for cutting the deficit, Martin Wolf in the Financial Times offers a sobre assessment of the case against “premature retrenchment” which he sees as threatening “recession and even deflation”. Reform’s plans would result in public sector cuts so severe that the “structural deficit” would be eroded entirely by 2014-15 – farther than any party has yet proposed – and the state scaled back to a level smaller than under any Tory Government since the 1960s.
Reform’s report, ‘Budget 2010: Taking the tough choices‘, argues for an immediate fiscal retrenchment which goes further even than the Conservative party’s pre-election plans to reduce the “bulk” of the structural deficit by 2014-15. Due to a series of proposed tax cuts – including reversing the 50p rate and reducing National Insurance Contributions – over 90 per cent of the fiscal consolidation would come from spending cuts resulting in a public sector net borrowing of 0.3 per cent by 2014.
This would be equivalent to a “structural deficit” of negative 1.2 per cent – effectively a “structural surplus”. The Office of Budget Responsibility on Monday set out that under existing plans, by 2013-14, public sector net borrowing would be 5.0 per cent compared to cyclically-adjusted net borrowing (the measure of the structural deficit) of 3.5 per cent – a gap of 1.5 per cent.
In today’s FT, Martin Wolf outlines the case against the process that Reform seek to undertake:
“So how quickly should deficits be eliminated? We must recognise the danger here: cutting public spending will not automatically raise private spending. The attempted reduction in the structural deficit might lead, instead, to a rise in cyclical fiscal deficits, which would be running to stand still, or to a reduction in the private surpluses only because income fell even faster than spending. Either outcome would be grim. Yet neither can be ruled out.
“As long as output remains depressed, the fiscal support is most unlikely to be inflationary. Nor will it crowd out the private sector: it is more likely to crowd it in. The big question, then, is whether deficits can be financed. My answer is: yes. Remember that so long as the private sector runs financial surpluses it must buy claims on the public sector, unless the developed world as a whole is about to move into huge external surpluses.”
Reform’s masochistic report calls for the immediate raising of the retirement age, means-tested benefits, cuts to the NHS budget, phasing out of teaching assistants, scrapping Building Schools for the Future, lifting the cap on tuition fees, and the elimination of VAT exemptions. If the programme were implemented it would see government spending (“total managed expenditure”) fall to 38.7 per cent – lower than under any Conservative government since the 1960s (see Table B2).
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7 Responses to “Reform’s masochistic fiscal folly”
kaschwilder
How to lose lives and alienate poor people http://tinyurl.com/36vrwju
rwendland
How can Frank Field still justify being on the Advisory Board of Reform after so many of Reform’s staff produce this straight down the line right-wing proposal?