Coffee House

A long way to go

20 October 2010

5:52 PM

20 October 2010

5:52 PM

George Osborne has probably done enough to ensure that the public finances are back on
track and that the national debt will not run out of control.
He has, however, taken only the first step on the road to reducing the size of the state. The government will spend the same proportion of national income in 2015 as it did in 2007. In other words,
the size of the state will be no smaller when David Cameron goes to the country than when Gordon Brown left the Treasury.
Much more could have been done and low-hanging fruit has been left on the tree. Child benefit should have been scrapped for 16-19 year olds. Universal payments to pensioners (winter-fuel allowance,
free TV licences and free bus travel) and the aid budget have been left untouched or increased. Indeed, pensioners will enjoy the absurd “triple lock” that will see their real incomes
increase dramatically if there is deflation. These items should not have survived the review. There was easily room for £10bn more cuts to enable a significant reduction in
The promises of increases in spending made by George Osborne were very firm and specific whereas the spending cut pledges were rather vague. There remains the nagging question of whether the cuts
will be delivered. And will we see the desired increases in efficiency so that there are no cuts to the front line? We will have to wait and see. Sir Humphrey will do his best to make the cuts as
painful as possible and deliver few of the efficiency savings.
There were also few comforting messages on public service reform. The school funding system should be reformed so that all funding is directed through parents, thus cutting Sir Humphrey out of the
system altogether. Productivity in the NHS has plummeted, but the government wants to continue with broadly the same model. The government is also simultaneously preaching decentralisation, but
then it brings in special ring-fenced funds for cancer drugs, dementia treatments and so on.
Now that all is done and dusted, the government needs to turn its attention to radical supply side reform: a flat tax, abolition of the minimum wage and a significant reduction in regulation. Only
that way will the private sector thrive and restore our trend growth rate. I see precious little evidence that this will happen. Osborne’s chilling remark: “Our aim will be to extract
the maximum sustainable tax revenues from financial services” shows that the Treasury does not understand that all such taxes are ultimately paid by savers (potential pensioners) and the
users of financial services (you and me). I want the Treasury to take the minimum revenue necessary from all sectors of the economy.

Philip Booth is the Editorial and Programme Director at the Institute of Economic Affairs

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Show comments
  • Chairman of Selectors

    This whole thing was laughable. A sham. Cuts? Please. Sod all will get done, but the bullshit international aid budget and the frankly offensive “climate change” industry will both benefit. Jesus wept, is this a Tory government or what? What the hell is going on? They strip school sports funding (that is a cut I can see happening), but increase climate change cash? Is this a joke? Chopping our armed forces? Maintaining winter fuel allowances for Alan Sugar? I am baffled (again) by Fraser’s positive spin on this debacle. The state will still be massive and we will still have bone idle 5 a day co-ordinators recruited on 40k instead of nurses and binmen, while our ever delightful eastern european cousins will continue to flood in. This was supposed to be an opportunity to sort the bloody public sector. Instead we got an ill-thought out lefty doctinated, right-on shambles. Sort the public sector pensions and cut taxes. Its not bloody rocket science is it George, you preening high pitched buffoon. I can’t even stand the sight of Cameron anymore. Jumped up PR monkey – the media hated him anyway – just ask Jeff Randall. He’s not a conservative. He is a liberal democrat and he will run this country into the ground, just as his psychotic predecessor did.


  • Dimoto

    “extracting the maximum sustainable tax revenues from financial services” could quite easily mean lower tax rates, what is so chilling about that ?

  • Verity

    “He has, however, taken only the first step on the road to reducing the size of the state.”

    While sending additional aid to the Third World, who don’t seem to have made much progress over the last 60 years as they show no signs of moving into the Second World, and the First World is still light years away.

    Money from British taxpayers should be spent on British taxpayers. If they want to give to Third World charities, they are perfectly capable of doing so themselves.

  • Sterence

    Surely the way to deal with the minimum wage is by increasing it in line with inflation not wages. If that is how government spending is moving in general it can hardly be regarded as unreasonable. The battle that (then) needs to be won is against the absurd idea that being below a *fixed* percentage of average earnings automatically renders a person impoverished.

  • Philip

    Trevor’s Den – I don’t know why you have to be so discourteous. The triple lock is a particularly odd way to increase pensioners’ real incomes as their real incomes will depend arbitarily on the rate of inflation. I would rather have seen pensioners’ disposable incomes raised by reducing the taxes they pay. The size of government will be reduced (as a % of national income) to 2007 levels. This is not about paying for the bankers’ mess; it is about reducing the size of the state from unsustainable levels

  • TrevorsDen

    anxiouswarrior – nope, wrong again.
    SKY actually interviewed a banker and he pointed out that Osborne was going to tax banks and their bonuses — he was quite upset.

  • TrevorsDen

    Dear ollie – this is why letting the spending genie out of the bottle is so dangerous.
    Its why what Brown did was so horrendously hideously disgraceful. Once out its almost impossible to put it back.

    Take a look at the speccy graph from a few posts back.
    After an increase in the early Major years Clarke was slowly rowing it back – well keeping it just about level – and Brown followed his plans for 2 years. This took 4-5 years to get back level after a relatively modest splurge.

    Just look at the massive increase by Brown subsequent. Its simply not easy to safely and humanely turn off the tap.

  • TrevorsDen

    ‘pensioners will enjoy the absurd “triple lock”’ — enjoy !

    Well up yours Mr Booth – so you expect pensioners (!)to pay for this mess. You ignorant gobshite.

  • anxiouswarrior

    i knew the neo liberal free market fanatics would be dissapointed,youl only be satisfied when the entire welfare state and nhs is destroyed, i see the spivs the bankers and the square mile did ok though chaps , typical right wing garbage

  • ollie

    I don’t think the cuts went anywhere near far enough.

  • Roger Davies

    The Minimum Wage kills jobs for those without skills. As many joining the world of work are without any skills or knowledge or initiative, then the Minimum Wage is driving them to permanent Welfare Dependency.


    Agreed but not that the minimum wage should be abolished. This leaves many vulnerable ripe for exploitation. And I speak as a right-wing Tory.