Outlook And so it begins. For months, no politician was prepared to say which departments would face spending cuts as Britain battles to bring down the deficit. Within 24 hours of taking office as the new Secretary of State for Health, Andrew Lansley was yesterday conceding the NHS would see cuts of £20bn over the years ahead, significantly more than previously envisaged. This is not to make a party political point but merely to observe that having talked about the squeeze for so long, it is now about to arrive.
For an idea of how savage the deficit reduction will be, look to Portugal. Its borrowing is lower than ours – certainly, the country is no Greece – and its growth, at 1 per cent in the first quarter, is higher. Yet the government of Jose Socrates has just had to unveil a programme of unprecedented austerity to appease the ratings agencies minded to downgrade the country and the markets that have been consistently nudging up its bond yields.
Like Britain, Portugal is cutting politicians' pay by 5 per cent, with the cull being extended to managers across the public sector. Like Britain, Portugal is raising income tax for high earners. And like Britain (for as Sainsbury's boss Justin King observed yesterday, we shall surely follow) it is raising VAT. There are spending cuts too: the freezing of public sector works and smaller settlements for local authorities, for example, on top of those pay reductions.
The response in Portugal was the threat of industrial action from trades unions, just as it had been in Spain 24 hours previously when its government announced similar austerity measures. And we know all about the pain of trying to get the Greek people to accept their government's programme. Yesterday, Athens was reduced to publishing a list of highly-paid doctors it accuses of evading tax.
For the Office for Budget Responsibility, the independent adviser the new Government says will keep the Treasury on the straight and narrow, the European experience will be informative. Spending cuts, it will note, may be difficult to actually implement (and not just because all those administrative savings so often prove ephemeral). Overly optimistic economic growth forecasts, it may conclude, are a trick of indebted governments across the EU.
Don't be surprised then if tax rises end up accounting for a greater part of the deficit reduction programme than the Conservatives had hoped. And certainly don't be surprised to hear many more admissions like the one Mr Lansley made yesterday.Reuse content