The axeman cometh

28/09/2009

The politicians can't stop talking about cuts to public services. How deep? Who will be hurt the most?

by Adam Forrest

Now the ‘c’ word has finally passed the lips of the Chancellor and the Prime Minister, there’s no stopping them. The politicians are tripping over themselves to talk tough about cuts to public spending.

“We won’t flinch,” says Alistair Darling. “No ifs, no buts,” insists Tory leader David Cameron. Cuts under the Lib Dems would be “painful and difficult” promises the party’s economics guru Vince Cable, rather proudly. Political debate between now and the general election will be dominated by whoever seems the most bold, clever and confident with the axe, garden shears, scissors, or whatever other cutting devices take the political cartoonists fancy.

It was all so different just a few months ago, when Gordon Brown talked about Labour “investment” and attacked the Tories for wanting to cut public spending by a “savage” 10%. The PM even attempted to brand Cameron as “Mr 10 Per Cent”. So last week’s leaking of Treasury plans for reduced government spending over the next four years – by 9.3% - was undoubtedly embarrassing for Labour. Cameron accused Brown, not unreasonably, of “taking people for fools”.

But while the Conservatives are desperate to be seen as the party playing straight with people – they won’t say exactly where or how much they’ll cut. Cameron said his party couldn’t possibly publish its own proposed spending plans, because Whitehall was not giving the opposition enough information. No wonder there is so much confusion.

Are we in danger of worrying too much about the growing deficit? Are there any identifiable differences left between Labour and Tory approaches to public finances? And could cuts to public sector jobs and pay see a return of the darkest days of industrial action?

Carl Emmerson, deputy director of the Institute for Fiscal Studies (IFS), says there is no doubt government loans and the enormous national debt are unsustainably high. The government borrowed at record £175bn this year – amounting to 12% of Britain’s GDP. Just the interest on the debt is set to double to over £60bn by 2014.

“It’s not free money,” says Emmerson. “If we carried on like this, at some point investors would say to us, we’re not lending anymore, or the interest rates would go up even more. You end up borrowing more just to pay the interest payments. The value of the pound could be diminished, potentially. You have to have a plan to stop increasing our debt.” “I think everyone accepts cuts are inevitable,” he adds.

“We are going to be poorer as a nation, so it seems to me sensible there’s going to be less to spend, and public services will have to bear some of this pain. But there is a political choice about how pain goes on cuts tax rises.”


The IFS believes tax increases or slashed welfare payments are the only way to avoid a huge reduction in front-line public services. The potential spending cuts could mean all those billions invested by Labour since 1997 could be wiped out. It is not an appealing prospect, hence Brown’s desire to keep the axe in the shed as long as possible, to delay cuts until the economy fully recovers from the credit crunch, and to spread reduced spending over eight years. The Tories want to get the deficit under control over four years. The Vince Cable party has offered a five year plan (the only one with any detail).

It is Brown’s hesitancy - his more Keynesian approach in maintaining economic stimulus in the short-term - and the Tories “no ifs, no buts” drive to slice into the deficit, that leaves the unions with a least little wiggle room to make favourable distinctions. Last week’s TUC conference saw a lukewarm reception for the current PM’s pledge to re-examine “lower priority budgets”, but the Conservative Party is still the public sector enemy No.1.

“The danger is we cut so quickly we fall back into deep recession, and a heck of a lot more people end up on the dole,” Adam Lent, TUC head of economics and social affairs, tells The Big Issue. “Cutting before a recovery is complete madness. It’s taking a massive risk with the health of the economy. We accept you can’t carry on forever with a deficit of 12 per cent, and it will be have to be addressed. But either do you do it in a fair and calm way over a period of years, or do you do it in state of panic.”

The TUC suggests tax rises should play a bigger role in the discussion – and scrapping tax relief on higher rate private pensions would be a good place to start. “Cracking down on avoidance by wealth people and companies would raise a lot of money,” suggests Lent. “£10bn is given in pension tax relief given to the richest 1%. That’s insane.”

The unions are concerned at Labour cabinet sources hinting at ending universal benefits like winter fuel payment and child benefit for a smaller means-tested take-up. But they are more worried about noises from the Tory camp about a delay in raising basic state pensions, something Labour have promised to restore in line with earnings in 2012. And any suggestion of a temporary pay freeze is given short shrift.

“I think there would be strong objections to a pay freeze,” warns Lent. “Public sector pay has been held down very firmly for a while now. And public sector job cuts will only damage the economy. It’s unnecessary and dangerous. It wouldn’t just be public sector workers protesting at these things – it would all kinds of groups. This crisis has been created by the city and the banking sector. Why should ordinary people pay the price?”

Does this mean a new wave of public sector strikes should drastic cuts occur? “Absolutely. If we got a cuts budget straight after the Tories winning the election, there would be an extremely hostile reaction. The unions still have a heck of lot of members.”

Karen Jennings, UNISON’s head of health, is similarly unimpressed by David Cameron’s solemn vow to ring-fence the beloved NHS from the big squeeze. “The Tories have said they’ll protect the NHS, but it’s very contrived,” she says. “They’ve already said they’ll take a look at (delaying rises in) public sector pensions. Inevitably under the Tories we’ll also see greater privatisation at a local level, so we’ll see an end to national (pay) bargaining, so it will be difficult to continue with achievements like equal pay for women. If we’re to see a Tory administration, we’ve got serious problems.”

“We just don’t trust David Cameron,” Jennings seethes. “When a Tory politician held up as a great party innovator (Daniel Hannan) is talking about the NHS being ‘a sixty year mistake’, how can we trust them? Privatisation hasn’t taken NHS staff to the barricades, but if it is accompanied by attacks on NHS (jobs and pay), then there will industrial action. Of course they will - it’s too much to bear."

Away from the cut and thrust of the front benches, radical measures to reform state spending are being discussed. The 2020 Public Services Trust has been commissioned to look into previously taboo ideas, such as raising national insurance contributions to funding healthcare via social insurance.

“Public services face a perfect storm of rising demand from an ageing, more diverse and more assertive citizenry coupled with a drastic squeeze on spending,” says commission chair Ben Lucas, who suggests we need to more inventive and adaptable than scoring red pens through budgets.

“The traditional Treasury approach of salami slicing savings across public services will not work - much more radical choices will need to be made, and how risk and responsibility should be shared between citizens, society and the state.”