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.