A year has now passed since the government published the results of its Comprehensive Spending Review. Brazenly, Danny Alexander, Chief Secretary to the Treasury, has marked the anniversary by proclaiming that the UK is now “master of its own destiny” . Predictably, Ed Balls argues that the coalition should not be focusing on deficit reduction as aggressively as they are. Frustratingly, both Mr Alexander and Mr Balls are wrong.
In May of last year, the incoming administration effectively arrived at the scene of an unpleasant road accident. The patient was injured and bleeding. There was only one thing for it – to hurriedly apply a tourniquet to stem the blood flow. But this is merely crisis management. It is not a strategy for the patient’s successful rehabilitation. One would be dismissive of a doctor, who having swiftly bandaged the injuries, took a few steps back from the scene and started to congratulate himself about how bold and brave he’d been. We should be similarly dismissive of government ministers who believe their modest trimming of public expenditure to be an act of political heroism.
The initial problem is that the Comprehensive Spending Review was not as advertised. It was anything but “comprehensive” (the IEA produced just such an alternative CSR). Memos were circulated asking ministers to draw up lists of how they could find savings of 10% or 20% in their departmental budgets. But the key question was not asked – what areas of government spending could be extinguished entirely? Evidence from the successful fiscal retrenchment in Canada in the mid 1990s shows that you are better to shut down a specific number of government programmes altogether rather than try to trim back on most or all of them if you want your reforms to stick.
In totality, the government plans to reduce state expenditure by about 3% before the next election. In real terms, for every pound being spent by government by Gordon Brown when he left office, David Cameron intends to spend about 97p by May 2015. He may not even succeed in this modest objective. The tendency will be for departments to find urgent new ways to spend taxpayers’ money or to fail to reduce their outgoings as rapidly as they had hoped. The coalition deserves half a cheer for being the first government in my lifetime to actually seek to reduce state spending, but the truth is that the planned reductions are tiny. In his brief stint as a Cabinet minis