Blog:Cutting The Overdraft
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Rob Binud, Economic Correspondent, 24th October 2010
The Comprehensive Spending Review (CSR) announced this week has been labelled as unfair and Labour alleges that it cuts too deep too quickly, risking recovery. Critics are also sceptical as to whether the private sector can create enough employment to cover the loss of public sector jobs.
I have to say that there is little in the CSR headlines that I personally disagree with, as a Lib Dem not a Tory. There are probably details where I would tweak and re-align, but as a whole it is common sense given the level of the public deficit.
Separate the long-term public debt from the short-term budget deficit. The former is like your mortgage, investment. The latter is like your overdraft and credit card debt, spending beyond your means on day-to-day living. It is the budget deficit, the overdraft, that is a problem for the country. If you are personally in financial trouble then few will criticise you for taking out a short-term loan to cover food and housing, and it is the same for the public deficit; it is fine to overspend slightly in bad times if you underspend and pay it back in good times. But that wasn’t what Labour did; it overspent in good times so the country was up to its limit when bad times hit. Labour continually claims it was not at fault for being at the helm at a time of global recession. However, this is to distract from the fact that their “end to boom and bust” approach meant they were responsible for there being nothing in the savings account for a rainy day.
So we have to pull the belt in and cut our everyday spending down to the essentials until things improve. Some 15 years ago after being made redundant I stopped the window cleaner and couldn’t afford to keep on the lady who came round once a week to clean the bathroom and hoover the lounge. Luxuries no longer affordable. No-one told me I had to keep them on because of the impact on their income and standard of living. And so the country has to let go of excess public servants who doubtless do a great job but not a job we absolutely need to have done. There are choices to be made. Diversity champions and infrequently used libraries, or teachers and cancer units. To their credit the Coalition government have resisted the vested interests of the providers of non-essential public services and have stuck to their guns. Polls suggest 60% of the electorate, or more, support these cuts but the 40% are far more vocal.
Are the cuts fair? Depends on what you call fair is the answer. The cuts hit the very poorest hardest so it can’t be fair. But the group covered as the poorest are those on benefits that are going to be cut. Is it fair that those struggling to keep their heads above water without state support must pay for many who just won’t get off their backsides and go look for work? Benefit dependency is bad for the country and bad for those who are dependent. There are some on benefits who are in that position through no fault of their own and it is right that society helps them out temporarily until they can get back on their feet. But being on benefit is not an alternative lifestyle that we can or should encourage as previous governments have unwittingly done. The poorest in work, or on a pension, are being least hit by the cuts. That is what I call fair.
The cuts are not anywhere near as bad as has been made out. Since Labour came to power 700,000 public sector jobs have been created. 500,000 are being cut over several years. That still leaves 200,000 more jobs in government compared to 1997. If it means that Bury Council will stop mailing out useless and unwanted magazines to all households then great. If your bins are emptied less often so you are forced to think about how much rubbish you create, fantastic. If government and local authorities are forced to stop and think about the silly money they pay to private contractors who have been milking the state since Thatcher’s day then that is the best news I can think of. If we cancel nice but unnecessary refurbishments to public buildings then it is sad but not the end of the world.
Good schools are defined by good teachers – my own state school was third in the country, including public schools, for academic results at the time. Yet I spend most of my lessons in ancient portacabins and our atlases were so old most of the countries were coloured in red to denote members of the British Empire. Good hospitals are defined by the medical staff not by the quality of the buildings. The Manchester Royal Eye Hospital was housed in a building that seemed not to have been updated for 100 years or more, and the staff were useless. Now they are in state of the art facilities and the staff are still useless. They scared me so much I waited 18 months for an operation at the Western Eye Hospital in London, a dilapidated institution with broken operating theatre lights so the surgeons had to wear miners’ headlamps, and the theatre itself seemed to have been recently converted from a broom closet (seriously, I was the first patient to use it and the surgical team had to do some clearing out before they started) but I couldn’t have been happier with the quality of the surgical and admin team and the results. People have to look beyond the paintwork and age of the furnishing to judge whether they are getting quality public services.
Until my taxes are used to subsidise the production of Coronation Street and Michael Buble concerts then don’t use them to subsidise opera, ballet, and contemporary theatre for the elite and tourists. Cuts to media and culture – happy days. I was extremely happy to hear that the Prince of Wales was going to be scrapped. Less than happy when it turned out to be a yet to be built aircraft carrier and not the waste of space heir to the throne. With any luck though a civil servant will make the same mistake and consign Charles to the knackers yard.
If, at the end of the pain, we end up with good quality public services devoid of obvious waste then it is a legacy that will serve us well for the future. If we manage to abolish benefit culture along the way then everyone will be the richer.
Can the private sector step in and cover the public sector jobs lost? Theoretically yes they can provided Government creates and maintains the right environment. Corporation tax cuts are a start, and continuing Labour policy of talking down the economy to depress the value of the pound is also very important to regenerate Britain as an exporting nation. But the banks are not lending enough, in part because many businesses don't want to borrow given how quickly the rug was pulled from under them a year or two ago. Stable, responsible, low-interest finance via state-owned banks should be relatively easy to facilitate. We also need to bring in usary laws to prevent banks from robbing personal customers to bolster profits. A cap on credit card and loan interest rates should make personal lending more responsible yet stimulate domestic spending without huge risks from sub-prime lending. Schemes to incentivise manufacturing industry and diversify away from dependence on financial services are vital. So a lot more work needed to ensure the private sector can plug the gaps. What you can't do is trust the private sector nor rely on it. They caused the crisis we are emerging from through under-regulated financial dealings. Left to itself pure capitalism would have left us all bankrupt and unemployed as it imploded. A hard lesson the Tories have to deal with is that business and the markets do not know best. Each business is interested only in its own profit and its market share compared with competitors. Destroying competitors by fair means or foul is part of the game. Maximising your own company profits at the expense of competitors and customers is also the objective. So do not allow them to work out how best to run a country and balance the nation's books!
You would have thought, given my almost complete support for the CSR, that perhaps I should consider myself a Tory. But what happened in the Commons following Boy George’s announcements confirmed to me that I can never give them my unfettered vote. Regardless of necessity and doing the right thing, people will suffer from these cuts. Real people with real families and commitments are going to be made redundant and it is not their fault. There needs to be compassion and understanding. Yet disgraceful Tory MPs were observed expressing joyous pleasure in the cuts, cheering, jeering at Labour, and waving order papers after Boy George finished. There is no joy and no pleasure in putting people out of work, however justified it might be. It is regrettable and sad. It demonstrates the true nature of the typical Tory MP, the nasty image Cameron has struggled to suppress. Lib Dem MPs were noticeably less jubilant. The fact that they have gone along with it proves the necessity. This is why we need a Coalition rather than an unrestrained Tory government. And in reality this suits Cameron too – without Lib Dems to keep on side the nasty wing of the Tory Party would be now showing us all why we kept them out of power for 13 years.
© Evrose, 2012
