Why we’re making the case against government cuts


4:06 pm - June 17th 2010

by Richard Exell    


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Every day, backed up by their chorus in the Conservative newspapers, government ministers insist that the deficit has to be cut immediately.

The reasons why we must have immediate cuts in public services and benefits change – sometimes it is the exchange rate, sometimes the bond market, currently the favourite reason is that it is unfair to the poor to have high debt payments (because that would mean we might have to … er, cut their benefits and services).

But, whatever the diagnosis, the prescription remains the same: cut, cut now and cut hard.

The Coalition has promised “arrangements that will protect those on low incomes from the effect of public sector pay constraint and other spending constraints.”

The TUC has argued that the government should apply a Fairness Test to all its plans, to make sure that the poorest and most vulnerable aren’t hit.

But, to be honest, given the scale of the cuts the government has in mind (a figure of £60 billion is often mentioned) it is hard to work out how they are going to live up to their promises. As we point out in All Pain, No Gain, a new report published yesterday, public services are part of the system of re-distribution.

They are used more frequently by people in the bottom half of the income distribution and most frequently by those with the lowest incomes. Social security benefits are, to a large extent, directly targeted on the poorest. As we have pointed out repeatedly, the measures that have already been announced – which were supposedly ‘efficiency savings’, not real cuts – are hurting the most vulnerable: cuts to youth services, the Future Jobs Fund, the Child Trust Fund, legal aid.

Cuts on the scale being considered by the government will lead to the loss of up to three quarters of a million jobs, and the reduction in demand could shove us back into recession. As David Blanchflower has said, even the taster we have had so far will lower GDP by at least half a per cent.

Yesterday a journalist asked me why I had the temerity to oppose cuts when the governments of Europe are rushing to impose them. Actually, this tells us nothing about whether cuts are a good or bad idea, but, as it happens, we’re in good company.

Like Paul Krugman, and Martin Wolf, we don’t think the bond markets are forcing us to get the deficit down – the UK’s debt has exceptionally long maturity (how long before it has to be paid off) and we are not currently facing high interest rates by the standards of recent history.

Like Joseph Stiglitz, we believe that faster growth is the best way to pay off the deficit.

And, like the businesses surveyed by accountants BDO, we believe that business confidence (and bond market confidence) can be threatened by cuts as much as by deficits.

The Case Against Cuts is the opening shot in our campaign against cuts and the rest of the conventional madness. Unfortunately, it looks as if it’s going to be a long one.

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About the author
Richard is an regular contributor. He is the TUC’s Senior Policy Officer covering social security, tax credits and labour market issues.
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Reader comments


So your argument is that cuts hurt? Well, yes, they do, but Labour had so much fun spending money that we dont have that somebody has to pay for it sometime.

What does £80 million buy you? One MP.

Its not about having fun though, is it? I’m sure it was not done for fun Nonny Mouse. Eventually we all will have to pay for consequencies of these cuts which in the long run will probably be more expensive as it has been proven in the past with crumbling schools, hospitals and the like. The cuts the Tories are proposing are for idealogical reasons and the present climate is a great opportunity for them to deliver what they have always dreamed of doing.

3. Jamie_Griff

Nonny Mouse

It’s not Labour’s spending that has led to the huge national debt, it’s the banking crisis and £700bn bail out of the banks. Labour’s spending in government was nothing out of the ordinary. If the Tories had been in government for the last 13 years they would have spent just as much and would have felt just as entitled to.
The world’s economic consensus was that the boom times would never end. Well, they did and when they did they revealed a huge black hole of worthless debt.
The elite has now decided that this debt, rather than being allowed to drown them, has to be paid off by the poor through austerity measures while they try to sustain the bloated economic model that got us here in the first place.
This isn’t a call about whether or not we’ll be tipped into recession the recession’s here and it’s here to stay for a long, long while. This is a call about who makes it into the life raft and who gets left behind to suffer.

We seem to be attracting Guido style trolls who leave one drive-by comment with a link to some uninformed drivel on their blog.

@Sunny – yep. They’re morons.

An excellent piece, though, and a relief to see it. What we need to see now if Labour pulling its head out of its leadership issues and fighting these cuts alongside the likes of the TUC as a priority. Labour needs to provide strong opposition and it has the people on the ground to do it – witness the good wins in local councils.

Steve M,

Your argument can be precisely inverted with equal justice.

“Eventually we all will have to pay for consequences of these cuts which in the long run will probably be more expensive” would become

“Eventually we all will have to pay for the consequences of running a fiscal deficit during a boom which, in the long run, will probably be more expensive”

You criticise nonny mouse for imputing a false motive to Labour’s overspending, (which probably wasn’t knowingly done for fun) but then you fall into the same trap yourself by asserting that the coalition’s cuts are “idealogical” [sic].

If you overspend even when the economy is growing well then it is bound to be painful when the economy contracts. That isn’t ideological – that is common sense. It is right for governments to expand in order to take up the slack when the economy goes into recession but it is far easier to do so if their fiscal positions were in balance or in surplus at the time the recession started.

As to the economists cited in the article, I think Martin Wolf is making a different point to that advanced by Mr Exell. MW is arguing against immediate fiscal consolidation – not against cuts per se. He seems to be saying that the deficit should be left as it is so that the government has money it can use to stimulate growth. That doesn’t mean making no cuts, it means redirecting government budgets towards anything that will create growth.

Now, the article does not suggest how the economy should be stimulated into growth but the maintenance of public services is not necessarily what he has in mind.

7. Flowerpower

Jamie-Griff @ 3

It’s not Labour’s spending that has led to the huge national debt, it’s the banking crisis

Not true.

From figures published April 2010, UK public sector net debt was £890 billion. (or 62% of National GDP)

Excluding Financial sector intervention, public sector debt is £771 billion or (54% per cent of GDP).

Therefore £771 billion of the £890 billion debt was run up before the banking crisis. Debt as a % of GDP increased from 30% in 2002 to 37 % in 2007 through reckless increases in government spending.

That part of the debt attributable to the banking interventions should, in any case, be recouped by selling off the government’s holdings in the banks in due course.

The real problem is the increasing debt caused by the present deficit.

These debt figures also leave out large sums that in other countries might count as national debt: unfunded public sector pension commitments and PFI.

Excluding Financial sector intervention, public sector debt is £771 billion or (54% per cent of GDP).

Let me get this straight – you’re advocating that public sector debt should be zero? Just to be clear as to how far your economic illiteracy goes…

All those tories who have used the extra money in the health service should not be complaining about over spend. Major left the health service on life support when the tories last left office.

Remember when the tories are in power we always have class war. But it is never called that. Class war is only when the little guy fights back, then the conservatives call it class war. O

All those tories who have used the extra money in the health service should not be complaining about over spend. Major left the health service on life support when the tories last left office.

Remember, when the tories are in power we always have class war. It is the normal tory way. But it is never called that.

Class war is only when the poor fights back, then the conservatives call it class war.

“currently the favourite reason is that it is unfair to the poor”

This is the new standard Right wing position on everything. We must to this because we are so concerned about the poor. BP should not pay for the clean up because poor old granny will lose her pension. We must cut govt spending to help the poor, blah blah blah.

It is sinister the way the Rich hide behind the poor for their own selfish reasons. There is no doubt that the Right wing is playing shock doctrine hear. They are using the financial situation to push through an agenda that they had anyway.

Still , it will be fun to see all those generals at the Ministry of Defence who have been attacking Labour for the last 5 years and leaking to the torygrapgh now all going to lose their jobs. Hope they are pleased with their new masters.

Sally,

And how many millionaires are there in that cabinet, y’know, as a percentage?

12

Exacxtly.

Shame they don’t have the integrity to admit that they are doing this because they want to cut taxes for themselves and their rich backers.

The Lib Dems are being played for suckers. I hope they realise this.

@8 – “Let me get this straight – you’re advocating that public sector debt should be zero? Just to be clear as to how far your economic illiteracy goes…”

Uh, that’s not economic illiteracy, it’s an opinion which differs to yours. It’s not an unreasonable position – and of course neither is saying that it’s OK to have public sector debt. The two positions simply betray different applications of logic and different ideas of how the country should be run, but neither is “economic illiteracy”.

What *is* economic illiteracy is maintaining public debt at an unsustainable level, or saying that it’s ok to keep debt at that unsustainable level. But that’s not my point. The point is that it’s petty and ridiculous to resort to personal insults in place of reasoned debate; attack the argument, not the person. I understand that you wrote the comment policy here, so I would’ve thought you of all people would appreciate this…

@6: “As to the economists cited in the article, I think Martin Wolf is making a different point to that advanced by Mr Exell. MW is arguing against immediate fiscal consolidation – not against cuts per se”

Exactly. Here is the link to Martin Wolf in the FT on Wednesday on: Why plans for early fiscal tightening carry global risks:
http://www.ft.com/cms/s/0/fc8d1dd4-78b6-11df-a312-00144feabdc0,s01=1.html?ftcamp=rss

In March, Alistair Darling was quoted as saying: “we will cut deeper than Margaret Thatcher”
http://www.guardian.co.uk/politics/2010/mar/25/alistair-darling-cut-deeper-margaret-thatcher

“Uh, that’s not economic illiteracy, it’s an opinion which differs to yours.”

No, it’s economic illiteracy. You can’t even get the simple ones right.

“No, it’s economic illiteracy”

Why?

For clarity’s sake, I’m not saying that I agree; I can think of lots of times when it would be beneficial to have public debt (as long as the debt doesn’t reach unsustainable levels, of course – and yes, I think that we are beyond that level now). But I can see why someone would think the opposite, that debt is bad, and I think it’s a perfectly reasonable opinion to hold. Like I said, it’s just a different philosophy, a different opinion. I’m certainly not going to insult anyone who thinks that, as you and Sunny seem so happy to do.

Also, worth pointing out that the comment that Sunny was responding to, Flowerpower didn’t – as I interpret it – say “all debt is bad” either. Merely that there is a high level of public debt. In fact I would go so far as to say that Sunny’s comment – especially with what he’s quoted – doesn’t actually make any sense…

As Alistair Darling appreciated, sooner or later the budget deficit will have to be reined in. Try this FT assessment of the focus of Osborne’s budget on 22 June:

“George Osborne is likely to announce additional public spending cuts or tax increases of £34bn a year in his emergency Budget next week, economists warned on Monday night after examining revised official economic forecasts.

“The new measures would be necessary, the Institute for Fiscal Studies said, if the chancellor wanted to meet his previous pledges of accelerating deficit reduction. They would hit every family in Britain by more than £1,000 a year on average.”
http://www.ft.com/cms/s/0/1ce1c670-77ea-11df-82c3-00144feabdc0.html#

But compare the debate over “economic illiteracy” with this forewarning of the coming upheavals in the NHS:

“Chris Ham, chief executive of the Kings Fund health think-tank, said: ‘There is a real risk that people will be distracted and preoccupied with this huge organisational change, just at the point where they need to be increasingly focused on productivity and efficiency.’”
http://www.ft.com/cms/s/0/dc1eee7c-7a25-11df-aa69-00144feabdc0.html

20. Just Visiting

So what does ‘The Case Against Cuts’ argue for – literally NO CUTS at all?
Ie keep budgets the same in real terms?

Strikes me that is not defenceable.

So the sensible debate is really not about Cuts vs No_cuts.

It should instead be the subtler debate – as to how (i) much to cut, and (ii) from where exactly

“It should instead be the subtler debate – as to how (i) much to cut, and (ii) from where exactly”

Exactly – but also about spending cuts versus tax increases and, importantly, the timing so as to avoid risks of another recession, a stagnant economy or – in an extreme case – deflation.

This is what Philip Stevens was saying in the FT recently:

“A large slice of the [budget deficit] can and should be closed by increases in taxes. For all that the last Labour government was accused of forever turning upwards the tax ratchet, the share of national income paid in taxes has hardly risen since 1997.

“At present it stands at 37 per cent. As the Institute for Fiscal Studies has pointed out, that compares with an average level of 40 per cent under the Conservative governments of 1979 to 1997. This is not the moment, in other words, for Mr Cameron to surrender to those Tory backbench MPs who want him to abandon plans to raise the rate of capital gains tax. . . .

“This takes us back to those perks for the elderly – paid irrespective of need. I heard the other day that anything up to three-quarters of FTSE 100 board directors are in receipt of fuel allowances and free bus passes. That sounds about right since the payments are made to everyone above the age of 60.

“The annual cost of providing these benefits, alongside free television licences, prescriptions and eye tests is now £4bn and rising fast. Most of this could be saved by limiting payments to those in most need through the pension credit system.”
http://www.ft.com/cms/s/0/257181e6-726c-11df-9f82-00144feabdc0,s01=1.html

Of course, there’s an easy way of reducing the NHS case load:

“A cancer victim was ‘flabbergasted’ when he was told by an NHS call centre operator that he could not book a hospital appointment because he was dead.”
http://www.metro.co.uk/news/831365-nhs-call-centre-tells-patient-you-cannot-see-the-doctor-you-re-dead

@6

IIRC Osbourne has already said he wants to reduce the deficit by 80% cuts and 20% tax increases. So it looks pretty ideological to me.

What I find interesting about the convergence of the deficit hawk narrative in the press and “small-state” politicians is that they’re talking about national debt in the same terms as personal debt, and equating best practice in dealing with the latter with best practice in dealing with the former. By doing this they’re tapping into a lot of people’s recent experiences of bank loans and credit card debts – and the worry and uncertainty they caused – to engender a sense of urgency.

Psychologically brilliant, but ethically very dicey – not that they care.

On a tangent, for my sins I skim-read The Sun while having lunch today (it was all that was available while I was waiting – so sue me 😉 ), and it amazed me just how strident the rhetoric was – demanding business-sector tax cuts to create jobs and stating as if it were fact that the level of unemployment was almost completely down to benefit dependency. Of course the fact that UK-based private sector jobs have fallen in number couldn’t be down to downsizing and offshoring to increase shareholder dividends and executive bonuses, nor would our captains of industry not simply squirrel away their tax cut savings to their personal accounts in the Cayman Islands…

“This takes us back to those perks for the elderly – paid irrespective of need. I heard the other day that anything up to three-quarters of FTSE 100 board directors are in receipt of fuel allowances and free bus passes. That sounds about right since the payments are made to everyone above the age of 60.

As are those pensioner ex-pats who live in hot countries.

25. Praguetory

The more noise you lot make about cuts, the more the public is assured that the coalition is getting on with the job as required.

“Why we’re making the case against government cuts”

Because you are in permanent opposition and loving not having any responsibility. Labour would have had to make these cuts too but having the evil Tories to bash adds relish, doesn’t it?

“So the sensible debate is really not about Cuts vs No_cuts.

It should instead be the subtler debate – as to how (i) much to cut, and (ii) from where exactly”

And also when to cut.

Plus there is the other side – seldom discussed – such as how to raise revenue and when to do it.

28. Flowerpower

Sunny @ 8

Let me get this straight – you’re advocating that public sector debt should be zero? Just to be clear as to how far your economic illiteracy goes…

No. Where did I say that?

I’d just prefer debt to be nudging 30% of GDP than reaching its current grotesque proportions.

This is take on the deficit challenge in Saturday’s The Economist:

“on forecasts by the IMF in May, getting the public finances back on track is the toughest assignment facing any G20 country”
http://www.economist.com/node/16377180

Andy Burnham is worried about the prospect of an increase in public spending on the NHS:

“Curb NHS spending pledge to save other services, says Andy Burnham – Schools and social care ‘could be badly hit’ by plans to increase health spending year on year, says shadow health secretary”
http://www.guardian.co.uk/politics/2010/jun/16/andy-burnham-nhs-spending-health

This graph shows the ratio of the UK’s national debt to national GDP from 1900 through to April 2010:
http://www.ukpublicspending.co.uk/uk_national_debt_chart.html

The official ONS figures for the ratios of the UK’s deficit and debt to national GDP:
http://www.statistics.gov.uk/cci/nugget.asp?id=277

By international standards, the ratio of the UK’s public debt to the UK’s GDP is not exceptional.

31. Flowerpower

By international standards, the ratio of the UK’s public debt to the UK’s GDP is not exceptional.

Add in the unfunded pension obligations and PFI and it is. These have been kept “off the books” precisely to create this illusion.

32. Matt Munro

The left always frame this debate in terms of

No cuts and business as usual

vs

cuts and double dip recession/harm to the “most vulnerable”

When the real choice is:

Cuts now, with short term pain and retrenchment of the state back to 1997 levels, followed by a return to growth

vs

High taxes, high unemployment, stirling crisis, low investment and a stagnant economy for at least a decade and very probably much longer

@ 31 “By international standards, the ratio of the UK’s public debt to the UK’s GDP is not exceptional”.

Yes, compared to those economic powerhouses of Greece, Portugal, Spain and Italy, we are doing rather well. FFS.

33. Flowerpower

Matt Munro @ 32

Yes…. but what’s puzzling me is how Labour can possibly adopt a “No cuts and business as usual ” stance when 4 out of 5 of their leadership candidates endorsed Darling’s £50 billion cuts strategy in Cabinet and when all Labour MPs fought the election on a pledge to halve the deficit in four years.

34. Ryhs Williams

“Yes…. but what’s puzzling me is how Labour can possibly adopt a “No cuts and business as usual ” stance when 4 out of 5 of their leadership candidates endorsed Darling’s £50 billion cuts strategy in Cabinet and when all Labour MPs fought the election on a pledge to halve the deficit in four years.”
True.
It would be the right decision to work with coalition government in this area.
Look at projects that involve the least harm to the low paid.
I doubt Labour will win the next election, I have a feeling that the Tories will ditch the lib dems and convincingly win the election.
Labour would look more credible if they picked and choose their opposition to the right targets.


Reactions: Twitter, blogs
  1. jackstone36

    RT @libcon Why we’re making the case against government cuts http://bit.ly/deZnQE

  2. hangbitch

    Great stuff from the TUC (I don't often say that) on Liberal Conspiracy re: arguments against public sector cuts http://bit.ly/bHG1pE

  3. libcon

    Why we're making the case against government cuts http://bit.ly/c5ye2G

  4. adamfishpoet

    Why cuts are a bad idea (trigger warning: contains comments from sum1 who thinks '99 vintage joke handles are funny) http://bit.ly/bHG1pE

  5. martinjdeane

    RT @AdamRamsay: Why we're making the case against government cuts http://bit.ly/c5ye2G <great TUC piece.

  6. leischa

    RT @hangbitch: Great stuff from the TUC (I don't often say that) on Liberal Conspiracy re: arguments against public sector cuts http://bit.ly/bHG1pE

  7. adamramsay

    Why we're making the case against government cuts http://bit.ly/c5ye2G <great TUC piece.

  8. atlantean7001

    RT @hangbitch: Great stuff from the TUC (I don't often say that) on Liberal Conspiracy re: arguments against public sector cuts http://bit.ly/bHG1pE

  9. manishtasunnia

    RT @AdamRamsay: Why we're making the case against government cuts http://bit.ly/c5ye2G <great TUC piece.

  10. Tweets that mention Why we’re making the case against government cuts | Liberal Conspiracy -- Topsy.com

    […] This post was mentioned on Twitter by AdamRamsay and manishta sunnia, Kate B. Kate B said: Great stuff from the TUC (I don't often say that) on Liberal Conspiracy re: arguments against public sector cuts http://bit.ly/bHG1pE […]

  11. Jenni Jackson

    RT @libcon: Why we're making the case against government cuts http://bit.ly/c5ye2G < brilliant!

  12. Richard A Brooks

    Can't wait to visit the new austerity blighty! RT @libcon Why we're making the case against government cuts http://bit.ly/c5ye2G

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  14. P. S. Wong

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