Clear Blue Water

So where are we now, after Budget 09, in terms of the size and shape of the state and public services for the future? The reduction of annual growth in public spending to a mere 0.7% in real terms, whilst protecting some big and sensitive areas like health and education, will mean real terms cuts across many other areas.

And latest round of supposed ‘efficiency’ savings are even more unrealistic than those that have gone before. In practice these will be ‘stealth cuts’ as front-line services will be eroded in both quantity and quality as the ‘efficiencies’ bite.

But Labour has clearly opted to more or less protect the big increases in public spending on services since 1999 and borrow a lot more over the medium term to support it, plus some tax increases in the short term. The media, and the Tories, don’t seem to have been too clear about this – first denouncing it as a ‘cuts’ budget – one reporter even called it “Thatcherite” (Evan Davis on Today) and then for not cutting and being ‘old Labour’ (The Times and Mail). But Labour may well still face a choice between more cuts or increasing taxes if they did, by some miracle, win the next election.

The Tories on the other hand are now firmly committed to a substantial shift away from public spending in order to reduce national debt without raising taxes. As I have analysed in my previous blog, this means really substantial cuts – but they are not (yet) telling us where. Overall we now have ‘clear blue water’ between the Tories and Labour – the government is going to try and more or less protect the size of public services as a proportion of the national economy – the Tories would try to fundamentally shift it.

Whoever wins next year, public services are in for a period of austerity – mild under Labour, sever under the Tories – but austerity for certain. And much greater pressure to do “more for less”. What sort of public services we have and whether or not either party would make really strategic choices about what to cut remains to be seen. In past periods of austerity the default position has usually been to salami-slice everything. That might, just, work for Labour but it would not deliver the sort of shift the Tories appear to want. Both ought to be thinking more strategically, but it is not yet clear either of them are (see the very good piece by Nicholas Timmins in today’s FT)

But there are also some other very big policy issues which we do not yet have answers to. The state is now the guarantor, and part-owner, of the financial system. If you had said a year ago that we would nationalise the banks, and the Americans would too, you would have been carted off for psychiatric treatment. The role of the state has shifted, and the old ‘financialised’ capitalism has taken a severe, possibly deadly, blow. What comes next? No-one really seems sure and neither of the major parties is really setting their stall yet on this front, other than vague statements of ‘never again’.

It all feels very seventies – except now we own the banks instead of the phones, and water, and gas, and…..

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