Leading article: Cutting now remains a risk to the recovery

Share
Related Topics

The £3m the taxpayer will save from the voluntary 5 per cent cut in ministerial salaries is a fine example of the sort of efficiency savings virtually everyone would like to see spring up across the public sector. The efforts of those serving in the Government will not, we can safely assume, be badly compromised by this loss of financial incentive. Perhaps they should have balanced their salary cut with a longer-term scheme for performance-related pay, dependent on the savings in the public purse they make – without cutting the standards of provision.

Sadly, such rewards may be scant. The reality, as the Conservatives recognised in opposition – when they were attacking their opponents' "efficiency savings" – is that cutting down on waste is the oldest trick in the book for a politician in a corner. In reality, the pain will be much greater than that suffered by new ministers on 95 per cent of a pretty acceptable remuneration package (Jaguar as standard for the lucky ones).

The £6bn in cuts that seem inevitable in George Osborne's emergency Budget next month will probably lead to the loss of between 30,000 and 60,000 public sector jobs, according to the National Institute of Economic and Social Research (NIESR). And, just as Vince Cable warned before he was signed up to the coalition project, it will knock back recovery. The NIESR puts the impact at between 0.1 and 0.2 per cent of GDP – which doesn't sound much until you put it in the context of an economy growing by just 1 per cent over 2010. The crisis in the eurozone – our largest export market by far – could shrink that still further. A rise in VAT to 19 or 20 per cent will also do little to support the economy. (It may be pre-announced for next year to bring consumer spending forward, but will still be a dampener). Half a million public jobs will go over the next five years.

The upshot is that Mr Cable and Nick Clegg will find themselves implementing an economic policy that they predicted would be a disaster just weeks ago. Now they must both hope that they were wrong and that David Cameron and Mr Osborne were right.

Then again, even that £6bn of cuts pales when the true, and as yet undisclosed, extent of spending cuts will be laid bare in the autumn. The comprehensive spending review will, at last, reveal where the cuts will be implemented. The "black hole" in the coalition's finances may prove even larger than the £52.5bn in undisclosed cuts the Tories advocated during the election. That's because, despite the stirring rhetoric about restoring the public finances, the coalition's policy statement suggests that they are keener to accommodate each others' tax cuts than they are to take on the unpalatable task of slashing public spending and public services.

The task of taming the deficit – as Labour and Liberal Democrats argued until the new government was formed – is less one of scale than one of timing. Cutting now is a risk to recovery. Mervyn King, Governor of the Bank of England, stressed the risks again this week, even as he praised the new government's plans. At a time when so many nations around the world are also cutting public spending and reducing borrowing – Greece is only the most spectacular case of a global trend – it is worth asking too what happens if everyone deflates at once. This is not the sort of phased considered support to the international recovery envisaged in successive G20 communiqués.

Instead the world seems set to slip into a downward spiral of competitive deflation. It is a classic paradox; what is sound policy for Ireland, or Greece, or even Britain, becomes insane when repeated on a world scale. Deflation, let it be remembered, often makes public deficits worse, at least in the short term, by choking growth employment confidence – and tax revenues. Days into its existence, this government is already displaying signs of a split personality.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Exhibition Sales Executive - OTE £35,000

£16000 - £35000 per annum: Recruitment Genius: An expanding B2B exhibition and...

Recruitment Genius: QA Technician

£16000 - £18000 per annum: Recruitment Genius: This leading manufacturer of re...

Recruitment Genius: Office Administrator

£20000 per annum: Recruitment Genius: Due to expansion, an experienced and hig...

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Day In a Page

Read Next
 

Children shouldn’t even know the word 'diet' — obesity and lack of body confidence are symptoms of the same cause

Natasha Devon
Rihanna, Nicki Minaj, Madonna, Deadmau5, Kanye West and Jay-Z at the Tidal launch event in New York  

Tidal: An overpriced music streaming service that only benefits the super-rich members of a messianic-like cult? Where do I sign up??

Michael Segalov
General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat