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: Junior Web Designer - Client Liaison

£6 per hour: Recruitment Genius: This is an exciting opportunity to join a gro...

Recruitment Genius: Service Delivery Manager

Negotiable: Recruitment Genius: A Service Delivery Manager is required to join...

Recruitment Genius: Massage Therapist / Sports Therapist

£12000 - £24000 per annum: Recruitment Genius: A opportunity has arisen for a ...

Ashdown Group: Practice Accountant - Bournemouth - £38,000

£32000 - £38000 per annum: Ashdown Group: A successful accountancy practice in...

Day In a Page

Read Next
 

Etch, a Sketch

Jane Merrick
 

Something wrong with the Conservative Party’s game plan

John Rentoul
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
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

How to make your own Easter egg

Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

Bill Granger's twist on Easter Sunday lunch

Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
Joe Marler: 'It's the way I think the game should be played'

Joe Marler: 'It's the way I think the game should be played'

The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

Cricket World Cup 2015

Has the success of the tournament spelt the end for Test matches?
The Last Word: Justin Gatlin knows the price of everything, the value of nothing

Michael Calvin's Last Word

Justin Gatlin knows the price of everything, the value of nothing