These spending cuts go to the heart of what sort of society we want to be

Decisions made now will tie the hands of the next government too. By the middle of the next parliament, half of all spending will go on social welfare and the NHS

Share

The cuts go on. It is almost impossible these days to open a newspaper or listen to a news programme without there being some reference to government spending cuts. The reason is simple: during the next four weeks, the Treasury has to get agreement from the various spending departments for their budgets to 2015-16, the first year of the next parliament. So departments have a choice. They either do a deal quickly, in which case they hope to get more favourable treatment. Or they put up a fight, typically by trying to whip up public support for their cause. If they do that, they may end up protecting more of their spending, but they may generate more resentment and end up worse off.

This is now being played out. Ministers have to make a judgement: deal or fight. Seven departments representing about 20 per cent of all spending have done deals but the rest have yet to do so. The ripples that surface in the media are the outward signs of the battles being fought far below. There will, I am afraid, be quite a lot more in the coming weeks.

All spending rounds reflect the tensions inevitable to government but this one is notable in several ways. First, it applies to the next government, not this one. That might seem strange given the political noise but the harsh reality is that the hands of any incoming government, at least in the early years, are pretty much tied by the decisions of the previous one. The case for accepting the previous government’s spending plans, as Tony Blair did in 1997, is that you cannot change them much anyway.

Second, there is not a lot of debate about the need for the cuts. The gap between the three main parties is marginal, a few billion here or there on a budget of half a trillion. As George Osborne keeps saying, the Coalition has eliminated one-third of the deficit. That leaves two-thirds to go. Even if they make more progress in the next two years than they did last year, the next government will have to face another five years of cutting. Alistair Darling said it would take two parliaments to clear the deficit, and he is proving right.

Third, there is not much debate about closing the deficit by increasing taxes yet further. Labour actually proposes cutting taxes, albeit temporally. There are two reasons for this. One is that increasing taxes would be likely to clobber the already fragile recovery. The other is that for the past 30 years no government has been able to collect more than about 38 per cent of GDP in taxation, so that seems the practical limit for the funds any government will have available. There is, I think, a tacit acceptance by all senior politicians that they have to work with what they have got.

Finally, this tussle over the spending round takes place against a background of a huge structural change in public spending that has largely gone unnoticed outside Whitehall. By the middle of the next parliament, public spending will be down to a similar portion of GDP as it was in around 2003. But the money will be spent very differently, with half of all spending going on two areas: social welfare and the NHS. That is a result of a number of things, but particularly the growing numbers of elderly people and the general rise in healthcare costs. Everything else gets squeezed: education, infrastructure, defence, police, housing, the lot. And it goes on getting squeezed.

It may be that this is the choice that we as a society want to make, but I suspect that most people, even most politicians, are unaware of what is happening. Expect the present rumbles about cuts to be nothing as to the battles to come.

Getting over the fiscal cliff

The bulls that believe that the surge in equities is mostly a reaction to positive news about the US economy – rather than a result of the central banks printing loads of money – got a double boost yesterday. One came from house prices, which showed the largest annual increase for seven years, nearly 11 per cent. The other came from consumer confidence, the highest for five years.

What is perhaps the most interesting aspect of current strength is that the big worry in the US earlier this year, that demand would be crushed by an arbitrary squeeze on public spending, the “fiscal cliff”, seems to have proved unwarranted. Congress did fail to agree to the Administration’s plans and the automatic cuts in spending, sequestration, has occurred. Partly as a result of these cuts and partly as a result of higher-than-expected tax receipts, the US budget deficit is closing much faster than expected. As for the cuts in public services, with the exception of flight delays as a result of cuts in air traffic control staffing levels, there has been little dissent. Maybe the fiscal cliff did not matter after all.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Project Manager with some Agile experience

£45000 Per Annum: Clearwater People Solutions Ltd: Our client based in Chelmsf...

Data/ MI Analyst

£25000 - £30000 Per Annum: Clearwater People Solutions Ltd: Our client are cur...

KS1 Teacher Cornwall

£23500 - £40000 per annum: Randstad Education Plymouth: Randstad Education Ltd...

Corporate Communications Manager - London - up to £80,000

£60000 - £80000 per annum: Ashdown Group: Corporate Marketing Communications M...

Day In a Page

Read Next
Francois Hollande at the Paris summit on Iraq with ministers from Saudi Arabia and Bahrain on 15 September  

What's going to happen in Syria and Iraq? A guide to the new anti-Isis coalition's global strategy

Jonathan Russell
The colours of autumn leaves are among the many pleasures of the coming season  

In Sickness and in Health: As autumn arrives, more of us should wear high-vis clothes

Rebecca Armstrong
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week