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Government cost cuts? Don’t hold your breath


JEREMY Hunt is facing a huge problem of which the touted £50billion ‘black hole’ in the government’s finances is merely a symptom. Of course, it’s also an estimate (read guess) as the cost of the energy support is dependent upon variables outside his control or ability to predict with any level of confidence. Chief among these are the weather, the price of liquefied natural gas (LNG) (itself in part dependent on the weather) and the financial markets. Add in strikes, public-sector pay awards and the growth (or not) of GDP and the Prime Minister’s reluctance to attend the COP27 boondoggle is understandable – whoever advised him to change his mind needs sacking. COP27 will achieve nothing; the November Budget could destroy the economy.

The unpleasant reality is that for 20 years government spending has exceeded its tax income in both boom and bust (it turned out that Gordon Brown’s attempted abolition of those features of our life failed). While Brown and quantitative easing (aka the magic money tree) planted the seed, the Johnson regime’s combination of the economic destruction of the lockdown, addiction to Net Zero and unexplained need to get to Birmingham 20 minutes more rapidly have imperilled the economy, and the nation, in a way that hasn’t been seen since the 1970s and the three-day week. Many of the current Cabinet were in Johnson’s – they need to mend the economy that they wantonly destroyed.

Having concluded that a budget for growth is not viable following the market’s rejection of the ham-fisted and poorly executed Truss plan, Hunt’s options are to raise taxes, which generally suppresses growth, or cut. Fifty billion pounds is 5 per cent of total government expenditure. Strip out capital programmes and welfare payments and you get to the annual running costs of the government machine being around £407billion. That’s where his cuts have got to come from, and that’s 15 per cent, implying cuts to public sector employment of one in six to one in seven. Such cuts have never happened, least of all in the two-year time frame before the next election.

Clearly Whitehall hates the idea of cuts of any size, let alone the scale which might be necessary to balance the budget and set this country on a more sustainable path. The total headcount of police, public administration (largely the civil service) and armed forces has fallen by about 5 per cent. The only major reductions in the past 20 years have come from denationalising the banks which were nationalised in the financial crash. But at some stage someone needs to explain the public benefit in the 60 per cent headcount growth in the NHS since 2021, or indeed the 10 per cent in education. The Chancellor should know something about the NHS as he was Health Secretary from 2012 to 2018.

If headcount can’t or won’t be cut (and it could start with a recruiting freeze), reducing capital expenditure (currently about £100billion per year) is an alternative but current projects probably have penalty clauses. While cutting future expenditure makes balancing the books in future a little easier, it doesn’t solve his immediate problem. I suspect the Ministry of Defence’s shiny new toys are going to be delayed, no matter how much Mr Wallace shouts.

If cap-ex cuts won’t do it, the final option is welfare. The big spends there are pensions (£110billion), universal credit (£73billion) and disability benefit (£28billion). Almost 15million people in the UK receive a disability benefit, including one in five of the working age population. While there may be some scope for tightening the spend it’s eluded successive Tory governments and neither Hunt nor Sunak have the appetite to give Iain Duncan Smith free rein.

Which leaves the favourite solution espoused by shadow chancellor Rachel Reeves, ‘Tax the Rich’ (as if there was any point in taxing the poor). The problem there, of course, is that ‘the rich’ are a finite number and they have the wherewithal to move. Taxing companies reduces profits and thus disincentivises the investment needed for growth, as Ewen Stewart and I have previously written here and here. The rumoured increases to capital gains tax would further undermine investor returns (and never forget that investor is quite probably your pension fund). It’s unlikely the few economically literate MPs can stop the lunacy from the back benches.

The Bank of England is forecasting recession and has, so far, been too polite to explain that the root causes were the Conservative government’s decision to embrace money printing, the Conservative government’s failure to control spending and, of course, the Conservative government’s decision to destroy our economy through lockdowns and yet more money-printing.

Whitehall has recovered from the Brexit shock and re-established control of the UK, largely by imprisoning it and bankrupting us. It has so defeated political thought that the electorate now has a choice between ‘tax and spend’ Labour or ‘spend then tax’ Tory. Like most voters, I choose neither. I want a Budget that empowers the private sector to do what it does best – create wealth by delivering services. Truss nearly got there. Hunt is unlikely to.

In the meantime, pray for a sunny, windy and mild winter.

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Patrick Benham-Crosswell
Patrick Benham-Crosswell
Patrick Benham-Crosswell is a former Army officer who has spent the last 30 years in commerce. He is the author of Net Zero: The Challenges, Costs and Consequences of the UK's Zero Emission Ambition. He has a substack here.

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