Mr Micawber Goes to the Treasury

18 February 2013

12:52 PM

18 February 2013

12:52 PM

John Rentoul draws attention to a new ComRes poll that goes some way towards explaining George Osborne’s predicament when it comes to managing government finances. Put simply, the public is not interested in public spending cuts. On the contrary, British voters want to see public spending increase.

Sure, they might agree that, all things being equal and in the broader scheme of matters, it might be a good idea if the government balanced the books but all things are rarely equal and as soon as you get into the narrow, particular view of these matters it becomes clear that, actually, the only departmental budget voters want to decimate is that small portion of government spending devoted to foreign aid. Even then, 24% of respondents say they’d like to at least keep the international aid budget at current levels.

In other areas almost no-one says they want to cut the NHS budget (5%), Education (7%), Police (9%). More surprisingly, only 27% of those responding to this poll wish to cut spending on welfare. Some 43% think the Chancellor should increase the welfare budget.


As Mr Rentoul observes, perhaps some people are aware that the state pension is the largest component of Iain Duncan Smith’s spending but, like him, I fancy most people view ‘”welfare” as shorthand for out-of-work benefits for people with their blinds down.’ So this may be another area in which talking about reforms – however well-intentioned they may be – may make implementing those reforms more difficult. The more attention any given department receives, the harder it is for the minister responsible to persuade the public that his plans are necessary, worthwhile, fair and workable.

Or, to put it another way, just making the argument makes it harder to win the argument.

Not that other spending cuts are popular either. ComRes report some support for cutting the transport budget (21%), defence (31%), public sector pensions (40%) and local government spending (33%). But these figures should be treated with caution too. For instance, I fancy one third of folk do support reducing local government spending so long as those reductions take place in other people’s council areas. If their own council is cutting spending – and services – then, well, that’s a different game entirely.

In the Financial Times today Dominic Raab, one of the keener Turks on the Tory benches, unwittingly demonstrates the problem. He writes:

If Britain needs a stimulus, it must be paid for and targeted for maximum impact. The answer is further cuts that do not damage growth or reduce frontline public services. Start with Whitehall. The UK has 20 central government departments, which inflate capital and administration costs. The US has 15 federal departments; Germany, 14. Even high-spending Sweden has fewer ministries than Britain. Options include cutting the Department for Business, Innovation and Skills (hiving essential programme spending back into the Treasury); merging the two environment departments; returning international development to the Foreign Office; and abolishing the Department for Culture, Media and Sport. We should also cut the number of ministers and reduce the pool of civil servants on six-figure salaries. Together, this would save billions, promote more integrated policy making and send a message that we are – including the political elite – truly “all in it together”.

Beyond Whitehall, bringing all UK troops home from Afghanistan by the end of 2013 (instead of 2014) would save £3.6bn. In the medium term, repatriating Britain’s share of EU structural funds for regional development would save £3.5bn.

These savings total more than £14bn a year, which could be shared between cutting the deficit further and faster, and slashing business taxes – especially for the smaller businesses and start-ups that create the lion’s share of new jobs.

 Is that it? A Whitehall reorganisation (itself hardly a cost-free exercise), leaving Afghanistan earlier than planned (a single year saving) and yet another EU Unicorn Rebate? Perhaps some of these notions are worthwhile (though I suspect Mr Raab’s estimate of the likely savings is more optimistic than reality will bear) but they’re not much more than chickenfeed when government spending will rise to more than £700bn next year. At best you might say this would be a start but it’s nowt more than that.
Meanwhile, at the Telegraph Benedict Brogan suggests the so-called Mansion Tax is a ‘zombie idea’ that should be dead but isn’t (though if it were dead then it wouldn’t be a zombie, would it?). He suggests that:
There was a time when a Tory Chancellor would have no difficulty making the case against new taxes, and increased taxes on wealth. In public, Mr Osborne has consistently spoken against it, even if – for a while at least – the Treasury considered the idea. He knows Britain does not suffer from a lack of taxation, or a shortage of contributions from those at the top. Speaking to a few ministers this morning, I am struck by one emerging theme: with the Budget approaching and Westminster seemingly sold on the idea that whacking the richest to help the poorest is smart politics, the Chancellor needs more people from his own side to help him change the subject.
Perhaps so. But the Chancellor is hamstrung by his own record. Cutting the top rate of income tax from 50 per cent to 45 per cent may have been justified by projected returns to the Treasury but it was – and remains – terrible politics that, alas, has handed Labour a millionaire-sized stick with which to bash the government. Crucially, it has diminished the political benefit that should have been accrued by raising the personal allowance.
Then again, that (welcome) policy was itself offset to a considerable degree by the Chancellor’s decision to increase VAT.
Mr Brogan concludes that ‘What Britain needs is less tax, particularly in the middle.’ This is true. But where is the middle? I often think journalists – especially but not exclusively those working for conservative-supporting papers – don’t appreciate where the “middle” actually lives. It is, for instance, curious to write about the iniquities of a Mansion Tax before finishing with a plea for the Chancellor to do something for a “middle” that cannot, by any reasonable definition of the term “middle”, be clobbered by a Mansion Tax. No, not even in London.
None of this is satisfactory. None of it is easy. None of these trade-offs are win-win propositions. Which is why the Chancellor’s room for experimentation – in both fiscal and political terms – is so limited. And so the strategy is, instead, one of hunkering down and hoping that something will turn up to make matters a little happier. George Osborne may not like to think of himself as Wilkins Micawber but that’s where he – and the country, frankly – is.

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Show comments
  • Richard Lucas

    Who could possibly sell the idea of cuts to the public whilst allowing wealthy bankers to run off with sackfuls of cash?

  • CraigStrachan

    “though if it were dead then it wouldn’t be a zombie, would it?”

    Aye it would. Zombies are the walking dead. (And the dead part is kind of important, because if they were still alive and walking about…well, what’s scary about that?)

  • Nick Reid

    Extremely good article. You hit the nail firmly on the head with the analysis of just how little savings (in the scheme of a government spend of £700bn) can be made with getting rid of government waste or streamlining ministries. Sure move the control of management of universities from Cable’s Ministry to Gove’s education Ministry, but isn’t this just a rebranding exercise, the essential functions remain to be done.

    The only solution I have ever found for a significant reduction in government spending (ie of the 5-10% level) is reducing salaries. After all personnel costs are the largest single government cost by far.

    You can either do this through a 5% wage cut across the board today (perhaps 10% for higher earners and zero cut for the lower earners). Or just keep wages static for 5 years and let inflation reduce their real cost.

    But when the likes of James Purnell gets £300,000 for Director Strategy at the BBC (yes, I know not a government dept) you do have to think that even if this is a real job, it is a vastly over paid one.

    • LB

      So if you can’t cut the spending, then it will be cut for you.

      1. They have over 7,000 billion of debts. The state pensions come to 5,300 bn according to the ONS.

      2. On taxes of 550 bn, and spending of 700 bn, that’s not going to work.

      Raising taxes by 30% on top of the 50% currently isn’t going to work.

      Similarly, when you look at the justification for hiding the state pensions off the books, it tells you what’s going to happen.

      It’s a contingent liability, says the OBR. What’s a continent liability? One where there is less than a 50% chance of paying out what is due.

      Wage cuts won’t do it either. Can you cut 150 bn a year off the wage bill? Not a hope.

      So it will be forced on the government, Greek style

    • Grrr8

      I don’t think you are correct on salaries but would be interesting to see the data. I believe the vast majority of the £700b spend is debt interest (£140b), transfers (£200b) and procurement of outsourced services. The biggest personnel pools are probably in the MoD and in Education.

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