Thursday, October 21, 2010

Osborne's CSR and the ghost of Gordon.

  We were warned in advance that it was going to be the most savage round of public spending cuts since the Geddes Axe nearly ninety years ago. An unprecedented  25-40% reduction in departmental spending.  The state would be reduced to a forest of bleeding stumps, forecast Labour,  after George “slasher” Osborne had swung his Condem chopper.   In the event, the headline cuts in departmental spending were only 19% - which is actually less than the former Labour chancellor, Alistair Darling had planned.  How they guffawed  on the Tory benches as Labour’s shadow chancellor, Alan Johnson tried to respond to one of the cleverest, and arguably the most cynical spending statements since, well, since the days of Gordon Brown.  
     George Osborne’s CSR had a remarkable similarity to one of Brown’s classic budget speeches. The hectic delivery,  the gratuitous self-congratulation, the blizzard of spending initiatives from Crossrail to the widening of the A11 around Norwich, which for some reason provoked cheers from Tory benches.  Cuts? What cuts? Pensioners are to keep their winter fuel allowances and free TV licences.  Child benefits for 18 year olds remain. Museums and galleries stay free.  
     Indeed, almost a third of this statement was devoted how much the Chancellor intended to give away,  to Equitable Life policy holders, Highlands and Islands broadband initiatives, coastal erosion management schemes,  more apprenticeships even. It was hard to keep track.  . NHS spending will actually rise.  Free bus passes and eye test stay.  Scotland is to get access to the fossil fuel levy and the Scottish budget is to be cut by £300m less than forecast by the SNP government - though the numbers are disputed. This was not what we expected; he wasn’t following the script.  Where were the bleeding stumps?

     Then realisation dawned:  for the last six months we’d all been carefully led up the garden path, invited to imagine that  yesterday’s spending review would be a welfare apocalypse, when in fact most of the really controvrsial announcements had already been made:  axing child benefit for higher income earners,  slashing defence spending, effectively privatising the universities south of the border, stomping on the BBC.  Even the raising the state pension age to 66 had been well trailed.   We had fallen for  the oldest trick in the political book: the management of expectations. Even Alistair Campbell would have been been impressed

    Nevertheless, in terms of numbers, it was still a very, very tough statement, cutting £81 billion off public spending and abolishing the structural deficit in five years.  Again, as with Gordon Brown’s budgets, many of the means for achieving this are pretty obscure, like the time limiting of employment and support allowance, and  fiddling with the eligibility for family tax credits.  The maximum savings award in pension credit is to be frozen for four years.  Confused?  I was.  But measures like these will apparently generate another £7billion in cuts on top of the £11bn already announced.  

   The main winners are Britain’s  pensioners, who keep free perks and don’t have to wait until they are 66 to get their state pension.  You don’t want to hit pensioners, as Gordon Brown discovered with that infamous 75p pension increase , because pensioners tend to vote.  The kind of people voters are happy to see hit are bureaucrats, public sector workers, local councils, banks, and people on welfare.  And these are precisely the people targeted.  There will be a permanent levy on the banks.   In England, local government is having its grant cut by almost a quarter.  There are astonishing numbers  of managers being axed from the home office and the NHS where up to a third will go. Public sector workers are to pay more for their pensions.  Even the Queen will have to get by with 14% less for running the royal household.

   The £18bn cut in welfare  means a hard road for the unemployed and single parents.  But many will see it as less than draconian given that the welfare budget as a whole amounts to £192 billion.   Measures like capping the amount an unemployed family can claim at the level of the average family take home pay sounds pretty reasonable.  Similarly, councils are seen as lazy and inefficient, bankers are universally loathed, as are bureaucrats who clog up hospital car parks with their BMWs.    Even the police, who have had a slap across the chops with a 4% cut, are not the heroes they once were.   And the British people are not going to take to the barricades over military bases, rail subsidies, or legal aid lawyers.  

   So, this was a very clever and a very political statement.  The news management was expertly handled.   It has put Labour on the back foot and forced Ed Miliband to justify giving child benefits to high earners like himself and to defend welfare recipients and NHS administrators.   Many people will suffer as a result of this comprehensive spending review - but most of them are among what voters increasingly regard as the “undeserving poor” - the ‘Shameless’ families stuck on benefits on bleak estates.  Middle Britain will not be hit especially hard. 

   Will it work?  Well, this is the big questoin. It’s one thing syaing you are going to deliver a massive cut in welfare, quite another thing delivering it at a time when unemployment is rising and the claimant count is going up.  Similarly, cutting bureaucrats and the costs of administration is easier said than done, as the government discovered when it was trying to kill of the quangos. There is a lot of smoke and mirrors about this deficit reduction plan, and perhaps a lot of wishful thinking.  In the end, the government has not actually achieved the epic roll back of the state that it promised - at least not yet.  We have yet to see Iain Duncan Smith’s new “universal credit” to revolutionise welfare benefits.  We do know that half a million jobs will be lost as a result of this CSR but we don’t know whether he private sector will be able to replace them.   In the end, this may be a CSR heavy on presentation and light on actual achievement.  Just like one of Gordon’s in fact. 


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