I couldn’t let today pass without a response to Danny Finkelstein. We do agree on the ends, but not the means. And, as he says, this debate mirrors one about the methods of reform. So, let¹s go through his points.
1. ‘I am afraid I think Fraser overestimates (a lot) how politically difficult this is all going to be. And how personally painful for a lot of people. And how technically difficult.’ Painful, yes, but necessary and it will be resented if Cameron is not straight about the cuts he will have to make. But how painful? Gordon Brown¹s great intellectual victory is to persuade the Tories that ‘cuts’ can only mean frontline services cut so (as Brown once said) 10% cuts ‘mean schools close and hospitals close.’ Now that Labour is planning 10 percent cuts I doubt Brown would still say that. And think about it logically: given that Labour more than doubled state spending since 1997 with precious little to show for it, why should it be so painful to reverse just a little of that extra spending? But perhaps most importantly of all, Cameron’s cuts will not be discretionary. It won’t matter what Danny says, or what I say: Cameron will have to cut or we¹ll be following Greece into the global A&E ward. The bond markets will give Britain its marching orders: cuts will cease to be a matter of political preference and start being one of national solvency.
2. ‘Cuts are hard, they are tricky, they can be elusive. They take time, sometimes a great deal of time. Margaret Thatcher (who always denied she was making cuts) certainly thought so.’ Thatcher denied she was making cuts because she never did. (See HM Treasury public finances databank, Jan10 edition, Table B1). The efficiencies she made were discretionary. Cameron¹s cuts will be made with the bond markets pointing a gun to his government’s head. Ask the Greeks how tricky and evasive cuts will be doesn’t really cross your mind if you¹re going bust and taking orders from Germans.
3. ‘Finally there is his point that this attitude among Conservatives created the climate for the fiscal crisis Britain is now facing.’ Specifically, I argue that it was the Conservatives failure to effectively oppose Brown¹s profligacy which allowed it. Brown discovered he had political ‘permission’ to do this, because the Tories were signed up to his spending plans rather than denouncing them for busting the country, as they went on to do. The Fink, in the nicest possible way, tells me to leave it out. Why? Because actually, Danny¹s explanation is worth a bullet point on its own.
4. ‘Indeed, in 2005 the Conservatives did not merely call for reduced spending but fiscal tightening too. This despite being accused of not cutting taxes enough.’ This is a popular myth: that the Tories fought the last election promising tax cuts and fiscal conservatism. IFS analysed the Tories spending plan, and found they wanted to outspend Labour and raise yes, Danny, raise – the tax burden. The PDF document is here.
5. ‘Critics on the right, including Fraser, have spent the last few years before the crisis complaining that the Tories are not fiscally lax enough. They wanted the party to back unfunded supply side tax cuts that they hoped would bring in income through increased growth.’ This is a fascinating point, fascinating as it is flatly untrue. But it is evidently how Danny saw the debate over the Brown years. I wonder if Danny can point to a single person who wanted ‘unfunded tax cuts’. Can he mention a single speech by a backbencher, think tank or journalist? I love you, Danny, but you¹re seeing blues under the bed here. I wanted tax cuts, but funded by a cut in the (considerable) government waste. At the Bournemouth 2006 conference George Osborne was going about saying he was boldly taking on those who wanted ‘unfunded tax cuts’ – except no one was. The insertion of the word ‘unfunded’ into the tax cuts debate was the rhetorical device the Cameroons (in the earlier days) used to make their peace with Brown¹s calamitous spending agenda.
6. ‘The Cameron-Osborne position that tax cuts came second after stability was ridiculed.’ I wonder why? Might it have been because this was a baffling non-sequiteur? I remember having lunch with a former Chancellor of the Exchequer when Osborne first embraced this position, who was trying to make sense of it. Doesn¹t Osborne realise, he said, that tax at such high levels threatens stability? It choked off revenues, which in turn created deficits and led to the deficit which created the black hole and, ergo, instability. Apparently this ‘stability before tax cuts’ slogan had its origins in one of Oliver Letwin¹s theories.
But here¹s the good bit – Danny and I can be united now. The 20 economists in the Sunday Times are joined by several million voters in believing that state spending is out of control, is ruining the country and needs to be put into reverse. I was not a combatant in the Tory wars of 1997-05, and I look upon it now as a distraction from what the party should have been doing: properly opposing Brown and his agenda which went on to cause such damage to our country. Danny and I may differ over what should have happened pre-crash but events have overtaken this debate. We¹re all cutters now.