Monday, February 01, 2010

Spending Money We Don't Have

Just wait until we see the card statement

The man who refused to buy more military helicopters back in the good times is now committing "to billions of pounds of extra defence spending". He's apparently going ahead with the Navy's new £5bn carriers, keeping Army strength above 100,000, and completing the Eurofighter and Joint Strike Fighter programmes.

And where, pray, is the money for all this extra spending coming from?

"A government source said there would have to be “tough decisions elsewhere”.
Ah. Of course. Tough decisions elsewhere.

But not apparently in the area of free personal care for needy adults at home. In a cynical attempt to buy votes among the elderly and their families, Brown announced at the last Labour Party Conference that he was ordering a huge expansion of the personal care programme. Yet according to the Directors of Adult Social Services it will cost around £1bn pa, whereas Brown has only come up with £420m. The rest? That will be down to those tough decisions elsewhere.

Not that Brown is alone. This morning we heard that nice but vacuous Mr Clegg promising to spend another £2.5bn pa on schooling for the underprivileged. £1.5bn will come from scrapping tax credits for all families on above average incomes - clear enough. But the rest will come from er... tough decisions elsewhere on er, quangos and inspection regimes... and stuff.

And then there are the Tories. According to the ever-helpful Mr Darling, they have made around £8bn of new spending pledges, including more single rooms in NHS hospitals and more maternity nurses (see this blog). But once again, the funding seems to be down to tough decisions elsewhere.

All of which raises the fundamental worry we've mentioned before: despite the direst warnings about the size of our national credit card bill, we don't yet seem to be ready for public spending cuts. Right across the board, our politicos have examined the entrails of their focus groups and private polls, and concluded there's simply no electoral upside in promising cuts. Which is why Brown is still dishing out new spending pledges, and why Cam is back-peddling furiously on his earlier promise of immediate cuts.

So how's it going to play out?

Well, if the politicos don't get a grip, sooner or later we will hit that sterling/gilts crisis we've blogged so often. At which point, we will end up being forced into an emergency package of cuts and tax increases just like back in the jolly old 70s. We'll have no choice.

Indeed, there is now a school of thought that Cam is back-peddling on his cuts promises precisely because of that. He knows the only reason there hasn't so far been a crisis of market confidence is that investors believe he will cut. But in political terms that means voters haven't yet been exposed to the real risks, so he gets no political credit for being tough.

Far better to back off now, ahead of the election, jangle the market's nerves while Labour are still at the controls, let the voters understand the real risks, and let them see Labour totally incapable of handling them.

You know, we hope that is the correct interpretation. Because it implies that Cam and George do understand the real problem.

But if we hit a pre-election market wobble, they'd better be ready with some convincing statements on their true fiscal intentions. The last thing we need is for them to get elected having already lost the confidence of the markets.

A very delicate flower, confidence.

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