The politics of the Spending Review

So far I have sought to give readers analysis of the figures of the Spending review. Today I want to give my opinions of the politics, and tomorrow my thoughts on the economics that lie behind it.

I was not one of those MPs who waved their Order Papers as the Chancellor sat down. I agree with Nick Clegg that this was no time to be triumphalist. Some of the cuts are substantial and difficult. Some of the reforming policies can be misrepresented and will be campaigned against vigorously. The public sector can, as I have explained at length, combine increased overall spending with raw edges in particular areas. The cuts spin was over the top in the run up to the settlement, leading some people to believe they were in for 25% cash cuts across the board next year when total overall spending was going up in cash terms.

Already on the BBC we are seeing and hearing a parade of badly disabled people claiming they will lose their benefits. The government should  have no stomach for a fight with the severely disabled. I understand they need not fear benefit loss. I would like the government to make this clearer, and to offer more reassurance. Getting others to work who are not severely disabled should not require any threat against those who are. They deserve our support and help as a society.

Councils will be noisy in complaining about their settlements. One of the disadvantages of localism from the central government’s point of view is it gives any Council the right to make bad decisions but still to blame the centre. When cash payments are falling Councils will have more excuse to pursue this strategy. In each case Ministers will need to be able to counter with practical advice to demonstrate that their chosen settlement is a sensible one which need not entail major cuts to important services.

I am not a great fan of having battles now about cuts forecast for 2013-2015.  A lot of the “real terms” cuts which have been so prominently quantified in the Treasury document occur in two or more years time. I doubt that the government  will hold to all these figures. I expect to see revisions in the light of actual inflation, growth, and  pressures to  offer more   as an election approaches. Why go into so much detail now? Why fight a battle about a cut for 2014-15 now, which you will have to fight again nearer the time if you wish to carry it through.

Markets need overall numbers but did not need every bit of detail for the later years. Markets will need to see soon evidence that in practise spending is coming under control and revenues are remaining buoyant, which is not the case in the latest figures.   We know the headline figures from the Budget can be revised, as the Chancellor increased capital spending for each of the next four years in this Spending Statement.

There are areas which could have been reduced to allow more space for better settlements in the areas which are causing the most grief. I still think the government should have pushed harder to cut the EU budget, or to re-open the question of the UK rebate. Conservatives never accepted the surrender of part of the rebate by Mr Brown and Mr Blair. The UK cannot afford large increases in its EU contributions at a time of deficit crisis.

I am glad the government  has decided to stop overseas aid to China and Russia. I wish it would stop all aid to the faster growing and more powerful emerging economies, and say that for the next two years it has to pocket these savings. It should resume more generous overall Aid programmes once the deficit is under proper control.

I want the government  to do more to reassure public sector workers. There do need to be substantial savings from fewer employess, doing more with less. This should be done without compulsory redundancies, so all public sector workers can be reassured they will have work even if  their job is abolished. The Chancellor tells us staff turnover is running at 8%. I  have been assuming 4% in my figures. At 8% the state could reduce employee numbers by 500,000 with no redundancies  within the first two years, whilst recruiting new teachers, doctors nurses and other crucial specialist staff from outside. Any public sector administrator or other generalist whose job is no longer needed should be offered an alternative post elsewhere within the public sector.

A stronger use of natural wastage, combined with a two year pay freze for all but the lowest paid, should achieve more than the stated plans, given the overall increase in cash spending. The  Treasury needs to cut its debt interest programme. Earlier back office and other savings will help do this. It does also have to accelerate the asset sales programme, so more of the immediate excess spending can be paid for from sales proceeds, cutting the interest bill.

These measures would leave more money to alleviate where the shoe is currently pinching.

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28 Comments

  1. P H
    Posted October 22, 2010 at 8:10 am | Permalink

    The politics of it are very difficult particularly with the BBC being so entrenched in a "Guardian think" mentality. How and where do they recruit so many people who all seem to think alike? They sound more like a pressure group for endless state sector growth using the disadvantaged as the excuse at ever available opportunity.

    This not helped by the Tories always failing to make the positive case for conservative policies probably why Cameron failed to win the election in the first place.

    The case is simple and highly moral. People spending or invest their own money far more efficient than the state does it. When they are allowed to do this everyone is far better off. People then have an incentive not just to live endlessly off the state just above a poverty level.

    The best help for the unemployed is the availability of work and this happens best when there are far fewer regulations, easy hire and fire and a tax scheme that encourages investment and personal wealth.

    Ministers simply never make the case always preferring to defend in BBC terms of "Fairness" , "Equality" & "Discrimination". Forget these do what actually, works for all, rather than create whole pointless "equality industries" and jobs for lawyers.

  2. norman
    Posted October 22, 2010 at 8:35 am | Permalink

    The importance of cuts can”t be over estimated but the other side of the fiscal coin, growth, is more important. I worry not enough is being done to ensure we have strong growth.

    Now that the cuts are out of the way let’s hope the government can turn its eyes in that direction.

  3. Nick
    Posted October 22, 2010 at 8:44 am | Permalink

    Politicians caused this mess. When are we having a politician tax?

    100% of MPs pensions is a start.

    6-7,000 billion according to the TPA. Against 20 billion for the banks.

    No wonder you are so keen to blame the banks.

    You can't blame labour either. You're punishing all banks, all the middle class for something they didn't cause. So you won't mind losing your pension because you are to blame.

  4. English Pensioner
    Posted October 22, 2010 at 9:28 am | Permalink

    It's time the genuinely disabled realised that all the spongers pretending to have disabilities are actually making things worse for them as the public is more aware of the latter and "tars them all with the same brush". When I see a report claiming that at least one person in four has a disability, I wonder if those who compiled the report are living in the same world as the real disabled. Presumably as I'm going deaf, there are those who would claim that I am partly disabled – I simply regard it as a minor inconvenience, but there are no doubt those who would use it as an excuse to avoid work.
    If they weed out the spongers, in the longer term that will not only save money but could make more available for those in genuine need.

  5. Alan Jutson
    Posted October 22, 2010 at 9:39 am | Permalink

    John
    The Government would do better if it used your talents a little more in presenting its case to both Reporters and the General Public. You seem to have the ability to cut through the maze of figures to be able to explain them more clearly than any other politician to date, and more to the point, be able to argue your corner with facts and figures.

    We are now into the third day after the announcements, and I have not heard one Minister say that Government spending is STILL INCREASING.

    Many intelligent friends of mine look at me as if I am having a senior moment when I tell them Government spending is still increasing, and simply cannot believe it because cuts to them usually means less expenditure.

    Whilst I can see that a huge amount of backroom work has been done by the Chancellor it seems to have left everyone except you, and perhaps him, totally confused. The Government simply has to find a better way of getting its facts and figures across to everyone, otherwise Labour and the media in general will play their own blame game.

  6. Brian Tomkinson
    Posted October 22, 2010 at 9:51 am | Permalink

    I shall be interested to read your analysis of the economics. I am still surprised that the markets have accepted this as an adequate response to the problems we face. As for the politics, we clearly still live in the land of spin. Virtually all the main points were leaked in advance. The "severity" of the cuts was trailed ad nauseam and now the media are running around scraping together scare stories and relishing the French demonstrations. Labour and the unions will do nothing but cause trouble and the government is being rebuked for doing things that it didn't in reality have the nerve to do. Most people still seem to accept the inevitability of taking action to reduce the deficit but the government will need to work much harder to counter the negativity, particularly in the broadcast media. Unfortunately with a few exceptions the people put up to speak on the government's behalf are poor communicators.

  7. Robert K
    Posted October 22, 2010 at 10:05 am | Permalink

    Jeff Randall has an excellent piece in the Telegraph today, pointing out that state spending increased by 50% in real terms under NuLab. There is an awkward truth in the coalition government's spending review: Mr Osborne is happy with his monniker of the slasher of state expenditure, but in reality he is no such thing. He is simply putting a gentle brake on what has been a riotous increase in government spending on the never-never in recent years. The irony is that there may well be a double-dip recession now, not because of the "cuts" in state spending but because the bloated client state will suffocate the wealth producing part of the economy.

  8. Adrian Sells
    Posted October 22, 2010 at 10:23 am | Permalink

    The "cuts" are surely welcome as would be any move to roll back the excessive involvement of the state in our lives, and I don't feel shy about stating this as a point of principle. However, the big question is whether they will be effective in terms of reducing the deficit. This seems to me to be extremely questionable – something you hinted at yesterday – because of the rather optimistic expectations of both growth and inflation in Treasury forecasts. You are quite right to dismiss projections beyond the next couple of years as they will be changed by circumstances. Our problems over the next decade or more will be a direct result of the political imperative of government and central banks to try and protect us from the consequences of the monstrous debt bubble that now needs to be deflated. Given that nobody has the appetite for harsh but swift Schumpeterian creative destruction, we are in for an extended period of sluggish, sub-par economic (in)activity.

  9. StrongholdBarricades
    Posted October 22, 2010 at 10:35 am | Permalink

    I agree with the locally accountable concept in this piece, but I wonder how you are going to get around this "cop-out" of blaming the centre.

    Surely to be accountable the local councils must raise all monies themselves for their services.

    Police, NHS, Housing, and Education budgets should be removed from these councillors because they are going to have their own locally accountable bodies, maybe it should go as far as Social Care too.

    Thus the Council Tax (Son of Poll Tax), and business rates should be what the council spends, and be accountable for.

    Maybe then the local councillors will have to actually represent their constiuents rather than blaming nefarious other individuals

  10. Iain Gill
    Posted October 22, 2010 at 10:39 am | Permalink

    and we need to get a proper immigration cap in place which covers ALL visa classes, especially intra company transfer, otherwise the massive numbers coming in displacing brits from the workforce is going to lead to serious issues

    even by the governments own analysis there is no shortage of IT or Telco skills in the british workforce, yet these are far and away the largest numbers coming into the country

    the way the outsourcers are operating is far removed from what the visa system was designed for, we need to redesign the system to cope with their apporaches, and to bring some proper checks and balances in

    • Mark
      Posted October 23, 2010 at 12:57 pm | Permalink

      You frequently post on this. Do you have some hard figures you can point to?

    • Simon
      Posted October 23, 2010 at 7:13 pm | Permalink

      Iain ,

      Are you not aware of GATS (general agreement in trade in services) Mode-4 arrangements ?

      It has been hushed up by the mainstream media and govt and Google have removed most links to it but not all if you really dig .

      As of December 2010 (many, yes maned) will come and work on British soil as fast as planes and boats will get them here as a result of the EU signing a free trade agreement with India .

      Immigration is set to rise even faster than it did under Gordon (words left out) .
      Hague and Osborne are continueing on his (word left out) work .

  11. THE ESSEX BOYS
    Posted October 22, 2010 at 11:03 am | Permalink

    Yes it does seem daft to invest so many man hours in unnecessary long-term figures of such detail, especially when we are conserving public expense.
    As in a business turnaround by far the most relevant figures are the Years 1 & 2 Cash Flow projections; the rest might well be for the birds. A typical accountants' exercise versus a businessman's one!
    The lack of EU detail gives the impression of sleight of hand or denial, especially when we might now be able to negotiate something more sensible with the initiative of Bill Cash and others.
    Given the debate on rich v poor we assume that the increase to the 50% tax rate is now regarded as fiscal history whereas in fact it will have a big new effect on the better off in combination with the other measures. We've heard no reference to this.

    So far, as in the election campaign, presentation to the man-in-the-street is not proving a strong point of the Coalition.

    • Alan Jutson
      Posted October 23, 2010 at 5:27 pm | Permalink

      ESSEX BOYS
      Its wonderful being able to give 5 year forecasts, but how accurate are they !.

      Agree with your point, long term forcasts are really an ego trip for those who prepare them it is no more than an educated guess, although when you have your customers by right (without competition) and can collect income by right, irispective of quality of service, it must help a bit.

      Clearly the Chancellor is going to revise his calculations each year and tweek where necessary. hence I do not believe Child Benefit will be taken away from anyone in (is it) 3 years time (2 years before an election).

  12. Robert
    Posted October 22, 2010 at 11:55 am | Permalink

    Part 2 – In fact Jeff Randall is quite right to point out as he does today: 'For those who insist that Mr Osborne is about to slash spending to the bone, forcing us to survive on gruel and stale crackers, here are some inconvenient facts. If he delivers all his planned savings, £81 billion over the next four years (by no means certain, given the scope for interest groups to resist change), spending on public services in 2014-15 will still be higher in real terms than in 2006-07. Yes, higher. You doubt me? Have a look at page 17 of the Treasury's Spending Review 2010. It's all there.

  13. Robert
    Posted October 22, 2010 at 11:56 am | Permalink

    Part 3 The entire shadow cabinet seems to be afflicted by amnesia, so excuse me for reminding them that 2006-07 was a year when Mr Brown jet-hosed public services with taxpayers' money. In his Budget speech, gilt-edged with hubris, he boasted of the benefits that expanded state spending would deliver, including: "Sustained long-term investment in our education, in infrastructure and in our future: possible because of our stability. So we can meet our fiscal rules, support the needs of business and make necessary long-term investments: first in science, innovation and enterprise; second in infrastructure and transport; third in security and defence; and fourth in skills and education."

  14. Robert
    Posted October 22, 2010 at 11:57 am | Permalink

    Part 4Did that feel like a Big Squeeze? Hardly. In a paper for the Centre for Policy Studies, Dr Tim Morgan, global head of research at the broking firm Tullett Prebon, concludes: "There is no evidence that public services were in any way under-resourced in that year [2006-07], when spending was already 26 per cent higher, in real terms, than it had been just seven years previously."

  15. Robert
    Posted October 22, 2010 at 11:57 am | Permalink

    Part 5
    I really do feel that there is no real sanity in Government , I suspect us tax payers may well get fed up with being hit both ways in supporting this giant monolith of a state and having to pay massively increased taxes – the non-feckless yet again being squeezed to the pips squeak. Maybe a UK version of the Tea Party is called for, though hopefully a more articulate and plausibe version than I perceive in the States. You may not believe it , but any civil disobediance in the future may come from a quarter that the political establishment least expect! Finally there is no logical, rational or justifiable reason to ring fence the NHS or the Foreign Aid budget increase. It is more than an affront to all of us who are having to pay both for the mistakes of not only the last Government, but also opposition who only until the 'crisis' broke were peddling the nauseating policy of sharing the proceeds of a debt driven growth. So John ,in conclusion, at best it is a politically expedient start, but it will not be enough and is not the solution!

  16. Stuart Fairney
    Posted October 22, 2010 at 1:55 pm | Permalink

    From Jeff Randall in the Telegraph

    "Between 2000 and 2010, had government's annual expenditure just kept pace with inflation, the budget would have risen from £343 billion to about £450 billion. In the event, Alistair Darling spent £669 last year and Mr Osborne will spend £697 billion this year. In real terms, over the past decade, there has been a 50 per cent increase in the state's outgoings"

    If this is correct, all the Chancellor is giving us is Labour-lite. Post democratic era anyone?

    • simon
      Posted October 23, 2010 at 7:23 pm | Permalink

      Most definitely Stuart .

      The last election when I voted for Mr Redwood will be the last I vote for a major party .

      The major parties only care about themselves , big business and the new world order . They don't care about British Citizens .

      Labour-lite sums the Conservatives up nicely .

      Apologies to the minority of Labour and Conservative politicians with integrity – it must be hell for them .

      If we want politicians to listen then you have to remove the comfort of first past the post and do anything which gives the minor parties access by breaking up the cartel .

      I urge people to use their vote in the forthcoming referendum to shake things up .

  17. Neil Craig
    Posted October 22, 2010 at 2:08 pm | Permalink

    I was interested in Alan Johnston's remarks in the debate speaking of cutting the size of government saying of some Conservatives that "that is what they came into politics for".

    I hope he is right. It is certainly not true of Cameron & is not a position anybody who got into politics for their own benefit would ever take. I can think of few better justifications for being there & I hope some MP says so. We are in danger, with Labour relishing the irresponsibility of not being in power, the government being scared of looking Conservative & UKIP kept safely out of the media that the case for rolling back government to something signoficantlt less than the present 50% will not be put. Since there is undooubtedly going to be some popular feeling looking for something different it is vital that a free market alternative should be on show.

  18. forthurst
    Posted October 22, 2010 at 7:34 pm | Permalink

    It's so reassuring to know that despite very necessary belt tightening at home, our largesse abroad, all decreed by foreigners, is sacrosanct; we will give aid to 'developing' countries, no longer Russia and China now, presumably they have recovered from their respective doses of Bolshevism and Oligarchism, but India still needs our help: developing the BrahMos-2 hypersonic cruise missile with Russia for export wll be expensive. (words deleted)

    Our commitment to abating carbon usage in order to save the planet as decreed by the IPCC under the magisterial leadership of Rajendra K Pachauri,(personal references removed-ed) is a reason for self-congratulation.

    Of course, the EU takes pride of place when it comes to spending other peoples' money; but where would we be without it? Free movement of workers to ensure high native unemployment in this country and prescriptions by the bale on how we are to conduct our lives whilst our farmers struggle under the CAP in a country which is foolish enough not to ignore the worst depradations of the Brussels Nomenklatura.

  19. London Calling
    Posted October 22, 2010 at 9:13 pm | Permalink

    "Already on the BBC we are seeing and hearing a parade of badly disabled people claiming they will lose their benefits"

    John, when will your party get it? The official opposition to the Government is not the Labour Party, it is the telly-tax funded ("Impartiality is in our genes") BBC.

    Its groupthink: when everyone around you spouts lefty tosh, it becomes the norm. Listento Dimbleby interrupting any Conservative sentiment in seconds, as he did on QT in Middlesborough last night.(Mr Dimbleby did not “spout left wing tosh” but asked questions -ed) (sentence left out -ed)
    What do you need to galvanise you into action – the celebration party being prepared in White City for Thatcher's funeral?

  20. S-J-R
    Posted October 22, 2010 at 11:09 pm | Permalink

    Puuurfectly put – I think your last paragraph sums up what I was failing to put into words to others who are more interested in protesting against the goverment – proactive! I have qouted you ……thank-you:

    "The public debate in recent weeks has been all about how to cut fair shares of a cake which is too small. We need to spend more time helping bake a bigger cake, and less time squabbling over the crumbs of the old one."

  21. Johnny
    Posted October 22, 2010 at 11:24 pm | Permalink

    The next moves of this Government must be "Political" as the Client State of labour is abut to get active. Everything and every redundancy will be the fault of these infamous "Cuts"

  22. THE ESSEX BOYS
    Posted October 23, 2010 at 11:03 am | Permalink

    YESTERDAY'S BLOG AGAIN IN CASE NOT RECEIVED:

    Yes it does seem daft to invest so many man hours in unnecessary long-term figures of such detail, especially when we are conserving public expense.
    As in a business turnaround by far the most relevant figures are the Years 1 & 2 Cash Flow projections; the rest might well be for the birds. A typical accountants' exercise versus a businessman's one!
    The lack of EU detail gives the impression of sleight of hand or denial, especially when we might now be able to negotiate something more sensible with the initiative of Bill Cash and others.
    Given the debate on rich v poor we assume that the increase to the 50% tax rate is now regarded as fiscal history whereas in fact it will have a big new effect on the better off in combination with the other measures. We've heard no reference to this.

    So far, as in the election campaign, presentation to the man-in-the-street is not proving a strong point of the Coalition.

    • James Clover
      Posted October 23, 2010 at 4:26 pm | Permalink

      I will repeat what I said a few days ago- the most serious weakness of this government is their lack of spin.
      They are just too gentlemanly to bite back savagely at the misrepresentation that the BBC especially doles out 24 hours a day. Had one not actually heard Osborne's speech, one would believe that it consisted purely of reductions in disabilty allowance and benefits for poor families.
      In reality, it was a rather leftish effort, though probably not as leftish as Cameron would have wished.

  23. Sandra M
    Posted October 24, 2010 at 2:21 pm | Permalink

    Regarding the one year limit on ESA: It depends how you define "Severely Disabled." My son was born with brain damage, has learning difficulties (his short term memory is so bad he cannot go out without a responsible adult with him) , walks with a limp and has virtually no use of his right hand. He has been put in the work related category of ESA and has been there for the past 10 months. During this period he has had an intensive period of physiotherapy on his right hand followed by an operation (an arthrodesis) and may need a further operation next year to lengthen the tendons in his fingers.

    Is it right that someone is such a situation should be moved back from ESA to JSA if he cannot get a job within a year?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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