Avoiding A Brown Recovery

Posterwise, the Tories are back in the groove. Good.

Even better, George is ruling out further tax rises*. Hurrah!

But when (please God) they hoof out Brown and this bunch of bankrupt has-beens, they will actually have to deliver on their promises. And that means reversing both growth destroying tax rises and interest rate increasing debt mountains. In other words, it means substantial spending cuts.

Which is why Cam and George need to be very careful about adding to the difficulties already caused by ring-fencing the NHS and overseas aid. Sprinkling around spending goodies like today's £200m for new cancer drugs may deliver a short-term high, but it will make life even more difficult post-May.

We can see just how difficult by taking another look at the history of cuts over the last half century. The following chart shows year-on-year percentage changes in total public spending, adjusted for inflation (TME - Total Managed Expenditure). And as we can see cuts are very rare indeed:

A few key points to highlight:

1. Life on Mars - the biggest cut by far was that achieved under the IMF cosh in 1977-78; it was driven by cuts in both current and capital spending; but note that even that legendary cut only amounted to 4% in real terms, and it was reversed within two years.
2. Ashes to Ashes - the two smaller cuts under Lawson in the late 80s reflected a recovering economy trimming welfare spending; but a key driver was years of severe restraint in current spending programmes, combined with further deep cuts in capital spending.
3. Things can only get worse - in the mid-90s, Clarke managed to cut spending two years on the trot (the second helpfully delivered to his successor in 1997-98); a rapidly recovering economy helped, but once again, a key driver was capital spending, which fell by 35% in two years.
4. Dust to dust - Labour's planned cuts (in red) are a bad joke: as we've blogged before, they amount to an actual increase in total spending over the next 4 years.

This record puts George's task into its full horrific context. Because depending on whose estimates of the structural fiscal deficit you believe, he needs to cut spending by between 10% and 20% in real terms - and also, keep it down afterwards. Which is way outside the range of anything that any living Chancellor has ever achieved.

And this time, capital spending is so much less to begin with. Back in the 70s public sector capital spending actually exceeded public borrowing - even when the latter ballooned. Which offered a fairly easy cuts target. However, in today's post privatisation world, public sector capital spending is much less than our huge deficit, so no easy option there.

But then, what do you expect? This is precisely the kind of disaster you get left with when you elect a clothead high-spending clownfest like the present crew:

They've spent so wildly that even a 20% spending cut from next year's planned level would still only get us back to the level of spending in 2004-05.

*Terms and conditions doubtless apply to George's tax offer - but the main thing is that George says there will be “no further tax increases in the emergency budget... We’ve set out our plans, they don’t involve an increase in VAT.”

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www.gudanggrosiran.com Categories: 2010 Election, cuts, tax and spend