Bulletin - 21 April 2009
Back to black – further coverage
The 80s revival
On Today this morning ([6.50am]) and the Daily Politics yesterday, Andrew Haldenby, Reform’s Director, and Tony Dolphin, the IPPR’s chief economist, looked at pivotal Budgets in history to shed light on the Chancellor’s options tomorrow
Tony Dolphin called on Alistair Darling to draw on the policies of the 1909 “People’s Budget”. David Lloyd George filled the hole in his finances (partly to the introduction of the first state pension and unemployment benefit) by introducing new rates of income tax on incomes over £2,000 (£140,000 in today’s prices).
Andrew Haldenby said that 1909 was the wrong model: “Lloyd George “tried to fill the gap in his budget by raising taxes, today that would prolong the recession.”
Instead he pointed to the 1981 Budget because it used spending reductions, in particular in local government, to restore economic confidence:
- “Geoffrey Howe wanted to send a message to the world that the UK government could run its finances properly and that is the mood we need now. The Chancellor needs to face up to the structural deficit in our finances and that means looking at the big spending areas: at health, defence, benefits and education, at the areas that UK politicians tend to avoid.”
Efficiency savings
- Yesterday it was reported that the Chancellor would announce £15 billion in “efficiency savings” in tomorrow’s Budget. A closer reading of the announcement, however, revealed that the £15 billion was made up from £5 billion per year already announced, and £10 billion in future years. The actual annual “saving” will therefore be around £5 billion or even less.
Beyond efficiency
§ Commentators today supported Reform’s argument that spending reduction should include not only “efficiency savings” but also real changes to programmes and entitlements:
- “The think tank Reform argued persuasively yesterday that this unprecedented crisis in the public finances should be the catalyst for changes that are years overdue …. Reform has called for a £30 billion cut in public spending, about 4 per cent of the total, to come in not this year but next, to kick-start recovery. It specifies how the money can be saved, with the big-ticket saving (£7 billion) achieved by ending the universal payment of child benefit and allocating it instead to low-income families. The move makes sense both in terms of value for money and also by dealing a long-overdue hammer blow to one of the worst aspects of our welfare state, the spraying around of state benefits to those who do not need them” (editorial, The Daily Telegraph).
- “The free market Reform think tank, which opposes higher taxes, has outlined options including the replacement of universal child benefit by means-tested child tax credit, a cut in doctors’ pay, cancellation of the new navy carriers and the Eurofighter, and ending universal winter fuel allowance and free TV licences for the over-75s. Pause for screams of protest and intakes of breath from politicians. Whatever your view on these ideas, there must be a public debate, before the election, on the spending and tax options, rather than deliberately vague good intentions” (Peter Riddell, The Times.
- “The message from the Treasury is that Darling is now determined to place the public finances back on a sustainable basis over the medium term. Easier said than done. The most obvious way is by taking an axe to the public sector. But Labour looks unwilling to take such a dramatic step. Instead, it will offer ‘efficiency savings'’which are hard to quantify and rarely delivered because the Whitehall machine is so inefficient. For Labour to provide any genuine reassurance to the financial markets it would need to introduce far more radical plans. The think-tank Reform suggests a start of £30 billion could be made by cutting child benefit payments to the well-off, reducing doctors' pay by 10 per cent and slashing £3 billion from defence projects” (Alex Brummer, Daily Mail).
§ Writing on the Spectator’s Coffee House, Elizabeth Truss, Reform’s Deputy Director, said: “indeed there are signs that a culture of plenty, and a lack of cost control, has generated a culture of fat in Whitehall…However, the unacknowledged truth is that the majority of government expenditure has taken place for a reason, however spurious…politicians will have to go beyond waste to achieve necessary reductions; tackling programmes and entitlements in the major spending areas to achieve change."