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: Telesales & Customer Service Executives - Outbound & Inbound

£7 - £9 per hour: Recruitment Genius: Are you outgoing? Do you want to work in...

Recruitment Genius: National Account Manager / Key Account Sales

£30000 - £35000 per annum: Recruitment Genius: An opportunity has arisen for a...

Recruitment Genius: Operations Manager

£30000 - £35000 per annum: Recruitment Genius: An exciting opportunity to join...

Recruitment Genius: Recruitment Consultant

£30000 - £35000 per annum: Recruitment Genius: We have an excellent role for a...

Day In a Page

Read Next
 

Letter from the Political Editor: Mr. Cameron is beginning to earn small victories in Europe

Andrew Grice
Pakistani volunteers carry a student injured in the shootout at a school under attack by Taliban gunmen, at a local hospital in Peshawar  

The Only Way is Ethics: The paper’s readers and users of our website want different things

Will Gore
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'