The Insecurity Plan

If there is one word that sums up yesterday’s Spending Review it is insecurity. Today Britain is a much less secure place to be than it was yesterday, nationally, socially and individually. And by the time the Spending Review is implemented in full we will all be feeling much less secure – we really will be ‘all in it together’. (“It” being the operative word).

The botched Defence review is the first and most obvious insecurity increase – aircraft carriers without aircraft, that’ll have our enemies quaking with laughter, not in their boots.

Personal insecurity in relation to crime is the next. The whole criminal justice system, from police through the prosecutors to the courts, prison and probation took a huge hit yesterday. In a period where the Home Office predicts crime will rise anyway, having less cops on the streets and less capacity to deal with anyone they manage to catch isn’t going to make anyone feel safer.

Personal insecurity extends to income, housing and welfare support as benefits, housing subsidies and social services are due to be slashed. And of course half million public sector jobs, and probably another half million private sector consequentially, will be lost with no-one putting much credence that they will be replaced with private sector growth.

All of which of course begs the question of was it necessary – was it really “unavoidable” as George Osborne contends?

In one sense yes, it is unavoidable that the British government needed to have a medium term fiscal consolidation plan to re-stabilise the public finances. About that there is very little disagreement between the main parties and analysts. But there is clearly disagreement on how far, and how fast, the retrenchment should go.

How fast is what could called the cyclical argument – what will be the economic effect of withdrawing £81bn of public spending over the next four years and starting, as they have, already this year with the emergency Budget back in June? The truth is no-one knows but the smart money is that we will probably not go into a double-dip but growth will be much slower as a result of these cuts.

International events will probably play as big a part as domestic policy in deciding if we do tip back into recession, but even if we don’t there’s a danger slower growth could actually make the deficit worse, or at least not come down as expected.  Ireland has returned to low growth, cut back spending and their deficit has climbed from 11 to 12% of GDP – not a happy precedent.

How far we need to cut is the really big issue that has been obscured by the ‘how fast’ cyclical debate and to which we still don’t have a full answer. Nick Clegg and other have been emphasising the four-year Spending Plan (up to 2014-15) only takes public spending down to 41% of GDP, the same of New Labour’s proportion in 2006. True, but that’s already 2% points below the 50-year average (43%) and more to the point the Government plans are still headed downwards after 2014-15. They are planning to cut still further in 2015-16, even after they have balanced the books, stripping out another £15bn or so of public spending and taking us down to under 40% of GDP. How much further do they want to go is the real question? Are we heading for a qualitative “rolling back of the frontiers of the state”? So far we don’t have a clear answer, but the indications suggest we are.

If so this does represent a massive change in policy for the Conservatives and their Liberal Democrat allies. It was only three years ago that the Tories were happily signed up to matching Labour’s spending plans (then at about 41% of GDP) and the Lib Dems wanted to spend even more! No talk then about public spending “crowding out” the private sector or the state being too big.

Shrinking the size of the state is a perfectly legitimate policy aim – but it is not one anyone voted for at the last Election because none of the three main parties put it forward.

The other way in which yesterday’s plan was definitely avoidable is in the balance it struck between various policy options for reducing the deficit. There are clear and legitimate alternatives between cutting spending and increasing taxes. The decision to put much of the burden on welfare whilst to some extent protecting services – health and education mainly – is also a choice for which there are plausible and legitimate alternatives. The decision to delegate the cuts mainly to local government, local services and the devolved governments is a choice, and different ones could have been made.

The political impact remains to be seen. The cuts will take a while to cascade down to localities and “all politics is local” as someone once said. We’ll see how far the current public acceptance of the cuts agenda remains when the reality starts to bite in cities, towns and neighbourhoods. It won’t be until well into next year before implementation starts to have a real impact. Public opinion can change remarkably quickly. And that is without the inevitable problems that will arise in implementation – it’s a lot easier to cut numbers on paper in Whitehall than it is to work it through down to street level.

Mr Osborne’s speech in the Commons was remarkable for the very clever political rhetoric and the almost complete absence of serious economic analysis. (And where were the accompanying forecasts from the much-vaunted Office of Budget Responsibility?). Long on politics, the speech was strangely lacking in any real sense of what Britain would look like when this was all over. There was no convincing narrative about where growth was going to come from, or what sort of society we would be in five years time. But if judge it by what it does rather than what it said, Britain will be a much more insecure place.


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