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Nick Wood: A strange economic conspiracy. Tories pretend to cut and Labour pretends to protest


A strange deceit lies at the heart of this week’s Autumn Statement. For all the spine-chilling rhetoric about the age of austerity, public spending in 2015 will be roughly the same as it was in 2010 when Gordon Brown’s profligate government lost power and the Coalition, supposedly dedicated to restoring the nation’s finances, grasped the reins.

Figures from the impeccably objective Institute of Fiscal Studies show that the Government wanted welfare cuts of £19 billion but has achieved reductions of only £2.5 billion. Overall, according to official Treasury figures, public spending in 2015 will be £744 billion, compared with £671 billion in 2010, a “cut” of just one per cent after allowing for inflation. Paul Johnson, the IFS director, has gone further, saying that significant reductions will not be achieved by 2019.

Yet, as Stephen Glover pointed out in an insightful piece in Saturday’s Daily Mail, this inconvenient fact will not feature when the Chancellor updates the nation’s income and expenditure account on Wednesday.

Neither of the two main parties has any interest in spelling out the realities of the spending figures.

For the Conservatives, George Osborne is treading a fine line. Yes, he wants to claim that the Government has taken the tough decisions to put the economy back on track. Growth has returned, nearly two million jobs have been created, unemployment has fallen to six per cent. But No, the job is far from over. With an election on the horizon, this is not the time to take a punt on Labour, the people who crashed the car in the first place.

The last thing that Osborne wants to concede that this is all a mirage. In fact, the Government’s talk of austerity and difficult decisions is wide of the mark. Spending, powered by the big ticket items of health and education (both exempt from cuts), welfare (which has mysteriously escaped the knife) and overseas aid (at £12 billion roughly the same as the net cost of our EU membership but a modernisers’ sacred cow), has not been axed, certainly not when compared with the Draconian squeezes imposed by impoverished eurozone states. Other budget items have taken a hit but they are small fry compared with the big spenders.

But Labour, presented with this open goal, will look the other way. Its “narrative” is that the Conservative-led government is heartless, bent on harassing the poor and flogging off the wondrous NHS.

As Glover puts it: “It suits the Government and its critics to maintain, in defiance of the evidence, that welfare has been severely squeezed and spending savagely chopped back. The Government wants to show it is tough and effective, while its critics hope to argue that it is cruel and nasty.”

Of course, the IFS has also worked out why planned spending reductions have not been achieved – largely down to higher spending on 400,000 extra pensioners, failure to control housing benefit payments and rising debt interest payments as the national debt heads north of £1.4 trillion.

But there is a deeper answer as to why Osborne has failed to balance the books. Back in 2010, the Coalition could and should have taken a tougher line on state spending. In its early years, benefits were uprated in line with inflation while those who kept their jobs suffered pay freezes or reductions. A benefits freeze back in 2010 and tighter controls on pensioner payments would have saved billions. Five years ago the public, horrified by Labour’s criminal extravagance, would have accepted the need for radical measures. That is not the case today as austerity fatigue takes hold.

Now, despite endless of talk of hard times, we still face an annual deficit of around £100 billion a year while the national debt has increased by nearly £500 billion as the Government has tried to borrow its way out of trouble.

The next administration, however it is constituted, will be faced with completing a cuts and deficit reduction programme only half done.

Meanwhile, Osborne will continue to walk the tightrope, teetering between banging the austerity drum and holding out the prospect of better times to come: tax cuts at the bottom and upper middle of the income scale and the extra £2 billion for the creaking NHS (a drop in the ocean for a £100 billion service).

Not that Labour has anything to shout about. Its core message, aimed at its shrinking core vote, is to denounce the Tories’ meagre cuts while having no constructive ideas of its own on how to balance the books. Left of centre parties always have little to say when they run out of other people’s money.

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Nick Wood
Nick Wood
Chief Executive of Media Intelligence Partners

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