It’s one of Westminster’s favourite cliches that a budget that looks good the day it is delivered usually falls apart by the end of the week. George Osborne’s CSR lasted about four hours. That was how long it took the Institute for Fiscal Studies, to contradict the central claim that the deficit reduction plan was progressive and shared the burden equally across all income groups. It clearly wasn’t. It didn’t take a genius to work this out since most of the cuts announced last week hit people on benefits, who are by definition the lowest income group.
Actually, the unfairness of the spending review isn’t really much of a political worry for the Tories. They think, and there is ample polling evidence to confirm this, that the British people now have much less sympathy for those at the bottom of the heap than has been the case in the past. All those press stories of families receiving £95,000 in benefits, plus the fact the welfare budget has risen by 45% in the last ten years, has made us much less soft-hearted as a nation. The latest YouGov/Sun poll confirms this, indicating that nearly 60% believe the welfare cuts were “unavoidable”.
The people who really need to worry about unfairness are the Liberal Democrats, the soft underbelly of the Coalition . No one expects the Tories to be fair; but they do expect the LibDems to be on the side of the poor, the disabled, the single parent. Once again, Clegg’s crew appear to be the human shield, absorbing the negatives from essentially Thatcherite policies. YouGov’s latest poll on Friday indicated that the Tories are holding up at 41% against Labour on 40% while the Liberal Democrats are down at 10%. In Scotland they're doing even worse, with the LibDems bumping along at 8% in the Holyrood list, only two points above the Greens. With the Scottish election campaign only six months away, you might have thought that this would be placing the Coalition under intolerable strain, but not so. If anything, sharing the CSR storm seems to have brought the Fellowship of the Quad even closer together.
However, while George Osborne may shrug off the IFS claim on fairness, he can’t ignore the institute’s other allegation: that even these unprecedented cuts may not be enough to eliminate the £109bn structural deficit in four years. The government’s own Office of Budgetary Responsibility raised similar questions last week about the Chancellor’s numbers, fearing that there were too many optimistic assumptions about the likely savings from measures such as means testing Child Benefits. The Chancellor, it seems, has borrowed a little too freely from Gordon Brown’s budget playbook.
Stripped down, Osborne’s deficit reduction programme depends on two massive assumptions: first, that this government can do what no previous administration has done and make significant and permanent reductions in welfare costs, and second, that it can deliver truly epic reductions in the cost of administering public services. Gordon Brown promised exactly the same when Labour came to office in 1997, and what happened?. The welfare budget stood at £106bn. when Tony Blair promised to cut “the costs of failure”. When Labour left office it had risen to nearly £200bn. and that was after a ten year economic boom. Blair boasted about the “scars on his back” from his drive to reform ‘top down’ public services and cut bureaucracy in the NHS and other services. The result was that administrative costs rocketed. The number of NHS managers increased during the Labour years at double the rate of nurses. According to the Office for National Statistics, productivity in the public sector declined by 3.4 in the ten years from 1997, when productivity rose in the private sector by 28%.
These numbers matter. Blair wasn’t fooling around: he really tried. Now, along comes Boy George Osborne promising to slash welfare in an economic downturn AND to cut administrative budgets by a third in all government departments. Barking! Where is the magic pill that will kill off all those entrenched bureaucrats, with their pension rights and severance deals? What makes Osborne think he can reduce benefit costs when around a million jobs are likely to be shed betwen the public and private sectors as a result of the CSR? More unemployment means more welfare spending AND reduces the tax revenues to pay for it. No one seriously believes the private sector can fill the gap.
The Coalition is relying on the Work and Pensions Secretary, Iain Duncan Smith delivering a miracle with his “universal credit”, but no one knows how this is supposed to work, and it won’t be implemented fully until the next parliament anyway. Meanwhile, the Prime Minister is already being confronted by claimants on wheelchars accusing him of stealing their benefits.
Really, smoke and mirrors doesn’t do it justice. This CSR is more like a Haloween mask bought in Poundland - not expected to last the duration. Yes, there have been real cuts - universities will be shattered, the BBC forced into the biggest cuts in its history, most families with children will be poorer. But it is wildly optimistic to expect this CSR to cut £81 billion in four years. The Chancellor will be back with “readjustments” in three future budgets. Expect these to be accompanied by liberal quantities of fudge.
The political objective of the CSR was to reassure the markets and to force Labour into a corner. To make them defend a welfare budget that consumes a third of all public spending and appear to oppose the reduction in bureaucracy. Ed Miliband has already been in difficulties over this, trying to argue that he is entitled to child benefits, despite earning £145,000 a year. Labour will be out marching with civil servants and local government officials in defiance of jobs that many voters think are expendable.
And in Scotland, John Swinney may have to slash much-loved services like free personal care and free tuition at universities. The SNP government has an impossible task trying to make sense of this spending review. The headline reduction in the Scottish budget may be marginally less than forecast at £900m, but the capital budget is slashed and the administrative cuts will show up in Barnett. Devolution was devised in the days when public spending always went up; no one knows how to take it back down again. Prepare for a winter of discontent for Scotland.