Remember this recent headline from the BBC?
‘Colossal’ spending cuts to come, warns IFS
When Osborne made his Autumn Statement the BBC went into overdrive to undermine any perceived good news. We know of its blatant comparison of the 1930’s depression to what they predict will be the outcome of his policies but they also hyped the IFS’s ‘revelation’ of those ‘colossal spending cuts’ after the election.
But hang on…isn’t that very old news? Haven’t we known for a long time that the majority of the cuts would come after the 2015 election? So why the hype from the BBC?
This was the New Statesman in 2013:
Austerity after 2015: why the worst is yet to come
This was the BBC itself in March 2013, reporting the IFS’ words….which have a familiar ring to them:
Budget 2013: ‘Cuts deferred’ until after elections
Or this from Politics.co.uk in 2012:
Never-ending austerity? More cuts to come after 2015
Nothing new there then…so why make such a song and dance about these cuts now in the run up to the election as if they are something new and terrible to be inflicted upon us completely unuspecting victims?
The IFS itself seems a bit confused as to what caused the slow reduction in the deficit….this is their analysis:
It is important to understand why the deficit hasn’t fallen. It is emphatically not because the government has failed to impose the intended spending cuts. It is because the economy performed so poorly in the first half of the parliament, hitting revenues very hard.
Oh right….poorly performing economy at the beginning of the Parliament…or is it? Here is the other explanation…from the IFS in the same analysis by Paul Johnson:
The relatively modest fall over this parliament is largely explained by increased spending on social security, especially pensions.
So is it a poorly performing economy or welfare spending caused by low wages, caused by immigration, and pension raises that kept the borrowing figures up?
You might look at Robert Peston’s honest appraisal of our economic situation…..note in particular these words which have long since been forgotten… ‘The clean up will take years. And there is no quick fix…. What became clear in 2008 is that we will have to find a way of paying much of that debt back.
That will take at least a decade.’
A decade…so by 2018…..as per the latest budget statement.
It is a very enlightening and honest look at the problem and consequences of debt, government spending and how it is funded….unfortunately it is an analysis that the BBC has always ignored, presumably as its diagnosis and prescription are a direct challenge to the BBC’s favoured narrative of high government spending on public services, welfare and infrastructure projects regardless of where the money comes from.
Here are Peston’s thoughts from his book ‘How do we fix this mess?’…..
How do we fix this mess? I don’t know. But don’t stop reading now. Perhaps if we have a clearer understanding of what went wrong, we’ll have a better idea of what needs to be done.
We will be right in the middle of the jungle, observing how bankers, regulators, politicians – and, oh yes, most of us – were by turns greedy, gullible lazy and short-sighted, and how we wilfully refused to see how our improving living standards were not being earned in a sustainable way.
We failed to rise to the challenge of globalisation.
We did not work harder and smarter.
Instead we borrowed.
And now as a nation, we have to pay back much of the debt, which inevitably makes us feel poorer, and will continue to do so for years to come.
The clean up will take years. And there is no quick fix.
We have allowed others, our governments and the so-called authorities, to take us from boom to bust.
I confess, during much of the journey, I had little idea we had taken a wrong turning….but as we headed for the swamp I succeeded in spotting the looming disaster and shouted out a warning: I was largely ignored and was even asked to shut up.
I am not going to pretend there is a road to Shangri-La, where we will suddenly find ourselves becoming richer and richer again.
We tried that road in the late 1990’s and early years of this century, and it was the road to ruin.
Boom and bust will be with us forever.
It was our foolish conviction that the smooth road to sunny uplands would go on forever which got us into such trouble.
The Future’s Overdrawn
Whether we own up to it or not, we can’t go on forever living on China’s credit.
What became clear in 2008 is that we will have to find a way of paying much of that debt back.
That will take at least a decade.
And when we repay debt, we’re spending less. Which means economic activity slows down, growth grinds to a halt.
It is reasonable to assume that growth will be as little as 1% in the coming 10 years….which wouldn’t look so bad after a contraction of 6.3% in output during the 2008-09 recession.
Cuts in public spending, including in benefits and tax credits, were almost certainly inevitable and have indeed followed.
Since 2008, the UK’s aggregate debt has been shuffled, not repaid.
The government kept spending to prevent recession turning into an extreme slump while tax revenues were shrinking.
When essential public services start to be financed through borrowing rather than tax, it is immensely difficult to cut the borrowing.