Friday, May 22, 2009

Cometh The Hour, Cometh The George?

Think of England George

This week's reports from the IMF and Standard and Poors (see yesterday's post) have piled the pressure on George.

The IMF says he must be much tougher than Darling in tackling the build-up of debt. And he must place the emphasis on cutting expenditure rather than raising taxes.

S&P threatens to remove the UK's coveted AAA credit rating if:

"... we conclude that, following the election, the next government's fiscal consolidation plans are unlikely to put the U.K. debt burden on a secure downward trajectory over the medium term."

So the heat is on, and George is the man strapped in the flaming seat.

What must he do?

First, as we've repeatedly and tediously blogged for years now, he must set out an explicit Medium Term Fiscal Strategy. It needs to incorporate a robust and quantified set of fiscal rules covering government borrowing, debt, and most crucially, spending. That last element was the gaping hole in Brown's famous fiscal rules, and George must close it.

The Strategy must set out a clear, and inevitably, stoney path for cutting the burden of government expenditure. A path which must be linked to, and driven by, a sustainable projectory for borrowing and debt. Spending must be driven by affordability, not grandiose social engineering projects.

Second, he must establish an independent fiscal monitoring authority to keep a very public eye on him - as he has promised to do (Another quango? Yes, but a critical one, fully funded by closing scores of others - eg the Equality and Human Rights Commission. And if we're that strapped, Tyler and a group of like-minded zealots might be able to cobble something together pro bono).

Third - and by far the most difficult - he must actually cut spending.

And unfortunately, that last task has just been made all the more difficult by the MPs expenses scandal. For how can these duck feather-bedded MPs possibly wield the axe on the poor and heavy laden? Where is their moral authority?

Take welfare. That comprises around one-third of all public spending, so it cannot possibly escape the cuts. But unlike say healthcare, where you can take refuge behind the argument that "efficiency" will deliver painless cuts (as Philip Hammond did on yesterday's Newsnight), cuts in welfare benefits mean someone loses cold hard cash.

Consider one of BOM's very first money-saving ideas - a redefinition of the poverty line (see this post).

The current definition of poverty is 60% of median income - ie households living below 60% of median income are defined as being poor (actually, it's 60% in so-called "equivalised income" terms - don't ask, but if you must, see here). And government welfare payments are driven by the desire to ensure nobody is below 60% (that's what they mean by "abolishing" child poverty).

But there's nothing magical about 60%. Years ago, it used to be 50%, and that was when median incomes were much lower than they are now.

We all know the argument: the old grinding financial poverty of popular imagination was long ago consigned to history. By and large, today's state benefits are more than enough to buy food, shelter, clothing, tellies, DVDs, and washing machines. And the issue with many of the poor is not money, but lack of ability to manage their own lives. Bigger hand-outs do not help with that.

So we suggested returning to 50%. And our fag packet suggested that would save around one-third of the welfare bill - a staggering £60-70bn pa. In one bound we'd be out of the debtors' prison free.

Is George up for that? Are our moat-owning, property-flipping, cosseted chauffeured MPs ready for the howls of outrage that would greet such an attack on the poor?

Yeah. I think we can see how that one will play out.

But if you rule out welfare, and you rule out the NHS, and you rule out schools, and you rule out overseas aid, pretty soon there's nothing left to cut.

Except of course, the second duck home allowance.

George, we need you to grit your teeth, close your eyes, stop reading the Grauniad, stop watching the BBC, and think of England.

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