Spending Review 2010: When will it be safe to go back in the water?
Thursday 21 October 2010
So now we know. The cuts are indeed deep, and – more important – will become progressively deeper as we move through this Parliament. For all the fine words of "protecting services" and the need for "fairness", many people will be shocked as the full consequences of the squeeze on spending moves through the system. Even the departments that seem to be protected, most notably health, will be squeezed because the demands on them will rise relative to the resources they have available. And remember, this entire operation, the toughest spending cuts since demobilisation in 1945/6, will not be enough even to stop the national debt from rising.
As for the task of starting paying the debt down – well, that's further ahead still. And this entire programme is based on the assumption that tax revenues will rise as a proportion of national income to the highest they have been for more than 20 years. We were given yesterday a barrage of numbers, billions being taken out of the bag, chopped in little pieces and scattered over us like confetti – except that this is no cause for celebration. It is all the more confusing because we have to try and pick our way between what is happening this year and next, what is supposed to be happening in the year after and what will probably never happen at all. We all know that in any five- year plan, years four and five are liable to be overtaken by events. There is the further confusion between what the cuts will be in real terms or cash terms, the "real" supposedly to allow for inflation. There is the confusion between current and capital budgets. And there is the confusion between three different types of government spending: what it spends on the salaries and other costs of running the Government; what it hands out in pensions, unemployment pay and other benefits; and what it pays the private sector for goods and services it buys in.
In a nutshell the Government is trying to do three things. First, it is trying to preserve its core functions – the things it absolutely has to do – but put huge pressure on its people either to do more with less, or to do much more with only a bit more. Second, it is trying to cut back the overall amount of money it hands out in the various welfare programmes, and redistribute what it is spending. And third, it is cutting back the goods and services it buys from the private sector.
You can catch the flavour for the first by looking at the contrast between the NHS and education. The former does get some more money but if you look at the rising costs of treatment, the labour-intensive nature of medical care, the climb in the number of elderly patients and so on, it becomes clear that it will be under as much pressure as other apparently less protected areas of spending.
In education schools are supposedly also being protected and the spending on science in universities is set to remain high. But that can only be done by pulling money away from universities teaching the humanities. Overall education cuts are more than 10 per cent in real terms. For all the rhetoric about university excellence it looks as though they will be big losers from these changes. If you say we will protect science you are implicitly saying we don't care about languages or history.
On the second area, changing the focus of the welfare budget, the big switch is away from general benefits to people of working age and towards pensioners. The ranks of the latter will continue to rise despite the increase in the state pension retirement age. Pensioners keep their free bus passes and up-rated pensions; wealthier parents lose out on child benefit. The detail of all this will take time to settle down, as our fiendishly complicated welfare system is being overhauled, but the message is clear. If you are of working age and do not work you will be squeezed; if you are elderly you will be favoured.
On the third point, the extent to which the cuts will be passed on to the private sector, the big shift is in the capital budget. If the Government wants to build a road or a school it does not get people from Whitehall to get out the concrete mixers. It pays a company to do the job. The total civil capital budget (i.e. less defence) this year is £43 bn; in 2013-4 it will be down to £30bn. That £13bn difference comes straight out of the private sector.
None of this is to say that these cuts are unnecessary. Even the previous government's plans, insofar as they were articulated, were to do pretty much the same but over seven years instead of five. Labour would almost certainly have been forced to tighten further had it retained power. As it has turned out, the Coalition has bought itself some leeway with the world financial markets, from which it has to borrow hundreds of billions in the next five years. The rate at which it has to borrow has fallen from roughly 4 per cent to 3 per cent. But despite that we still have to spend a lot more on interest than we do, say, on defence.
But it is to say that these next few years will be very difficult. We will be asking ourselves as a society to do things differently. The people who have to carry through the detail of this will feel the pressure most immediately. But I think even people who are not so obviously affected will find it hard to cope, and not just because we will be getting less for our money. Our society will be moving in a different direction: one that pushes more responsibility on to individuals, the start of a retreat by the state. When this spending review nears the end of its period there will be another. By then, despite all this rigour, our national debt will be higher still, the burdens on government greater. We do not face catastrophe but we do face tougher times.
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