The age of austerity vs slash and burn

Hamish McRae’s article in Wednesday’s Independent is frightening. Absolutely terrifying.

During the Cameron Direct event in Bedford, it was said that our current deficit is projected to be around 14 per cent. The IMF were called in under the last Labour government – when it was 7 per cent.

We projected to borrow at least £175 billion this year – it’s just the most ridiculously large number. It’s hard to comprehend just how much needs to be done. But even the Treasury’s (leaked) plans show that debt repayment alone will cost £63.5 billion in 2013/4 – that’s £1,000 per individual (nearly £3,000 per household) before we even start paying for anything else. The entire defence budget is ‘only’ £35 billion.  The international development budget is under £8 billion. The savings proposed two weeks ago to the cost of politics add up to just £120 million. Even if (some of) this is scare tactics to soften us up for the changes that will have to come, the amount we currently owe per household is pushing £30,000.  And so far, nothing is being done to reduce it.

I am fed up of hearing ‘Labour investment versus Tory cuts’ – whoever is in government will have to reduce public spending, as amply proved by George Osborne on Wednesday. The real question is how.  Will it be a broad-brush, 10 per cent everywhere and no arguing? Or will it be done painstakingly carefully to ensure as little damage as possible and to create a healthy basis for future recovery?

As I’ve argued and argued and argued, if the Conservatives are elected to government, the first requirement is honesty about the state of the books (so Alistair Darling’s decision to keep most PFI and public/private partnerships off the books is completley unacceptable) .  The second step is what Gordon Brown called ‘unnecessary spending’ (which does somewhat beg the question of why it’s being spent in the first place). Then we need to pick through and identify the programmes that don’t achieve much (for example, Labour’s multi-million pound ‘real help now’ with mortgages that has apparently helped a grand total of 15 families – surely there’s a better way to do that?) . The most difficult step will be to identify the programmes that do some good but which are not essential – and, yes, maybe even then some programmes that do a lot of good but for which there just isn’t enough money.

I don’t want the process of finding these reductions to be vindictive. I don’t want them to be, in Nick Clegg’s word, “savage”. I want them to be the right ones to get the budget back under control, to ensure that essential frontline services that people rely on are properly funded, and to enable future, sustainable growth.

The key to this is how to balance the dreadful position in the shorter-term with the ongoing need to make sure the position we’re in at the end of it is solid.   As I argued yesterday, there are some programmes which, while expensive in the short-term, might be worth pushing for because their long-term value is so great.

And politically – how will it work? I think Tim Montgomerie is right to say that David Cameron will need a specific mandate to do what needs to be done. I think there are some things that the Conservatives can and should be specific about now and in the run-up to the election, but much more that they won’t be able to identify until they have full access to the books – in order to discover both the full scale of the problem, and the full potential for reductions in spending.

On reflection, I suppose you could say that that’s a typical even-handed, have it both ways fudge – but it is the true position. There is a way out of this. It will be difficult. But pretending it’s not happening is not how the way out will start to work.

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