07 July 2009

Is this the true size of the planned cuts?

How I love a Tuesday morning and reading Rachel Sylvester .  She never disappoints and The Times should make more use of her.  Today’s piece is all about public spending cuts and a meeting that Sir Gus O’Donnell, the Cabinet Secretary, had with senior officials and Tory frontbenchers:

In 1994 Canada was running a deficit of 9.2 per cent of GDP, about the same as Britain’s today. It had tried “efficiency savings”, public sector wage freezes and departmental budget cuts with little success.

Then the Liberal Government launched a fundamental review of the role of the state. Public expenditure was cut by a fifth across the board, and the number of state employees reduced by 23 per cent. Although health had only a small reduction in funding, defence spending was cut by 15 per cent, the transport budget was halved and industrial, regional and agricultural subsidies slashed. Within three years the deficit had been reduced to zero and the Government re-elected. “There was blood on the floor everywhere, but at least everyone could see that others were hurting too,” said Marcel Massé, the minister responsible. Voters told him: “This is butchery, but at least you seem a good surgeon.

The Conservatives were impressed. Philip Hammond, the Shadow Chief Secretary to the Treasury, and Francis Maude, the Shadow Cabinet minister responsible for policy implementation, requested a private breakfast briefing with the Canadians. But what was perhaps more interesting was that the civil servants, including Sir Gus, were in broad agreement that there were lessons for Britain from Canada. The consensus was that even a 10 per cent cut in spending — the figure used by Labour to attack the Conservatives — may not be enough.

Even Brown has now climbed down on his investment versus cuts lark:

The battleground for the next general election is now clear: it will be cuts versus cuts rather than investment versus cuts. At last week’s Cabinet, Gordon Brown agreed that the Government’s message had been too simplistic and that Labour could no longer continue to deny that there would be spending constraints whoever won the next election. It was an important climbdown for the Prime Minister and a victory for Alistair Darling and Lord Mandelson over Ed Balls and Shaun Woodward. According to one minister the new dividing line will be “nice Labour cuts versus nasty Tory cuts”. That is much more dangerous for the Tories.

In conclusion:

It could be tricky. Nice cuts or nasty cuts; old or new cuts, amputation or keyhole surgery — either way it’s not going to be fun. It is telling that the Canadian Liberal Party did not tell the voters before the election precisely what it had in mind.

Bear in mind that the Canadian system of government is different where much of the expenditure can be off-loaded to the provinces, which can’t happen here.  Also taxes could rise to offset the public expenditure cuts, but make no mistake our fiscal position is dire.  Whether cuts of this scale are required or political palatable remains to be seen.

The Brown bunker will be over these proposals and no doubt will have it up in neon lights what the Tories are planning.  Moreover, Cameron will not be best pleased that news of this has leaked.  Leaving the politics aside, for senior members of the civil service to identify themselves with such meeting can only mean there is some truth in the size of the cuts required.

We are in for a very bumpy ride folks.

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  1. The problem for Brown is that he has already set out his badly judged stall. He can't adopt a new dividing line now without making the Tories look "right" - and more like a Govenment in waiting.

  2. Agreed. But that will not stop him making the most out of this story for his own advantage.