The BBC Website is leading with the story “Chris Huhne hints at a shift in public sector cuts”, following an interview given to the Telegraph. I think, as I said last week, that Labour should take this very seriously indeed.
This started on Wednesday with a story in the FT, written by well connected economics editor Chris Giles rather than by their political staff, saying that the Treasury was looking to “reprofile” the programme of spending cuts to due to the “difficulties” of cutting so quickly, such as financial penalties in contracts, etc.
This line of argument has been extended by Chris Huhne who notes that spending cuts could be slowed due to “economic conditions”.
Huhne it is worth noting is a former economist, a former head of a credit rating agency and a member of the “star chamber” having agreed the cuts to his own DECC budget early.
I’m taking these stories seriously and see them as preparing the grounds for a slowing of the pace of cuts.
Some commentators last week couldn’t see this happening – Cameron, Clegg and Co have invested so much political capital in the need to cut the deficit and the “there is no alternative” line that they can’t back down now. I’m not so sure.
Remember the Tories backed Labour spending plans until the financial crisis hit and then totally reversed course at the time of the fiscal stimulus, despite every nearly serious economist writing at that time attacking them.
I wouldn’t put it past Osborne to try a similar political gambit at this stage.
Again, as I said last week, this causes potential problems for Labour.
Obviously we could repeatedly shout “told you so” at Osborne, but I’m not really sure that would feed through to the public mood especially when it means department budgets are being cut by 20% rather than 25%.
And it would mean moving more the pain to 2014/15 and 2015/16, i.e. in the run up to an election. That might help Labour.
But the real danger is what it does to Labour’s response. I’m guessing here but I suspect that Labour’s broad approach under Miliband and Johnson will be to attack Osborne for cutting to quickly and “risking the recovery” coupled with arguing for a halving of the deficit over 4 years using a 50/50 mix of tax rises and spending cuts. Call it “Darling Plus”.
Slowing to broadly Labour’s pace in 2011 to 2013/14 would neatly neutralise the first charge.
Look what this slowing in cuts could do the numbers, and bear in mind that Osborne is looking at £15bn of welfare cuts.
The table below is from an old post.
Note how Osborne is (was?) looking to tighten fiscal policy by £41bn, £66bn and £90bn in 2011/12, 12/13 and 13/14, whilst Labour, using some variant of the Darling plan (either as was or with a 50/50 mix) would be looking at £25bn, £42bn and £56bn.
(Rough numbers to follow, it’s Saturday morning and I can’t face excel).
Imagine Osborne slows to, say, £35bn, £50bn, £70bn.
Now look deeper at what this means in terms of cuts to public spending.
Osborne would presumably be proposing cuts to public spending of around £22bn, £36bn and £49bn.
Labour of £12.5bn, £21bn and £28bn.
That sounds like quite a big difference, and it is. But remember that Osborne has proposed £15bn of cuts to the welfare budget. Subtract that to get the proposed cut to departmental spending (which is the metric Osborne will use) and we get.
In 2011/12 Osborne would claim he was proposing cuts to public services of around £7bn against Labour’s £12.5bn. In 2012/13 the numbers would be £21bn for Osborne against an equal £21bn for Labour and in 2013/14, it would be £35bn for the Government against £28bn for Labour.
In other words, for two years (and possibly longer), Osborne would be able to claim he was cutting public spending in line with the cuts proposed by Labour before the election and at the rate still supported by them now.
This all has to be viewed through the lens of where George Osborne, a very political Chancellor, wants Labour to be in 2015. My best guess – in a position that can be characterised as proposing tax increases to pay for more welfare spending. Slowing down the pace of his own spending cuts helps him get to that position, and I reckon he’ll calculate that achieving that is worth a few weeks of being taunted with “I told you so”.
Labour needs to prepare ways to maximise the advantage of Osborne backing down, without falling into his neatly set trap.