Monday, October 18, 2010

So What Happened To Those 25% Cuts?

It turns out she had it easy

As we blogged over the weekend, the noises off suggest that all that macho talk of 25% spending cuts was way off the mark.

We learned in June that George's cuts were never going to deliver more than a 4% overall reduction in real-terms spending over 5 years (ie a 9% increase in cash spend against 13% projected inflation). And although the ill-advised ringfence around the NHS and overseas aid budgets suggested that cuts in other departments might still be much higher, it now seems that even those cuts have been trimmed back. The big spending departments seem to have diverted any real pain into the welfare area.

Can that be right?

Sure, we know the difficulties. We know that even Mrs T never actually managed to cut overall spending - she only managed to restrain its growth.

But Mrs T was not wrestling with the kind of horrific government deficits and debt we currently face. Even in the annus horribilis of 1980-81, public sector net borrowing was only 4.8% of GDP, with public sector net debt a mere 46%. Compare her stroll in the park with our current predicament, where we have government borrowing over 10% of GDP, and debt already through 60% and rising fast.

In the circs, you have to wonder why we're not sticking with the original idea of 25% cuts. Surely after those huge budget increases under Brown, all departments must have a great wobbling midriff of blubber just crying out for emergency liposuction. 

Now a helpful new report from Policy Exchange gives us a fix on that blubber, at least in a subset of the spending departments.

Policy Exchange examined spending in six non-ringfenced departments to see how easy it would be to make overall 25% cuts without damaging vital services. And it turns out it would be dead easy, or in the words of lead author Andrew Lilico:
“From our report, a natural conclusion to draw is that it would be relatively straightforward to achieve savings of around 25% across most departments. Indeed, it is perhaps surprising that there is so much ‘fat’ in the system that cuts on this scale can really be made in so many areas so straightforwardly."
Which in terms of spending cuts is rather encouraging.

But the report also makes the very good point that it would be even easier to make cuts without damaging services if the ringfenced areas were also made to take their share. PolEx's head Neil O'Brien says:
“There is a lot of waste and unproductive activity in the areas we examined. Yet these are not the areas which have seen the largest increases in spending in recent years. In the areas where there was a real flash flood of spending we might expect even greater potential to make effective savings.”
The overall conclusion is familiar in the sense that it would have been a lot better not to have set up those ringfences in the first place. But by looking at specific areas in detail, this report tells us the ringfenced areas offer a deal of scope for Cuts II, sometime around 2013.

PS Tomorrow Tyler's long promised report on the Real National Debt hits the newsstands... well, it comes out, anyway, and we'll take a look at the main findings.

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