Thanks to Dave H. for pointing me at this IFS document:
Now there are two unperceptive ways to come at this document, depending on your political stance. You can claim it proves that Labour spent all the money and the Tories will sort it out. But that forgets that RPI was 18% in the first year of the Thatcher administration – the tired claim then would be to blame Big Jim. Or alternatively, you can say that the recovery is fragile, and severe cuts now endanger it. That ignores the fact that £156bn is not a feasible amount of borrowing every year for five years nor can it be justified, as I previously argued.
Neither of these approaches are useful of course, and this document is more balanced than that. My views are post-political. I have one objective and one only: balance the books. Beyond that, I don’t care who is in Downing Street. Governments of both stripes will fail to tackle the structural deficit while doing other annoying and pointless things. Labour will fail to tackle it while recruiting an unproductive army into the public sector in a version of the payroll vote writ large. The Conservatives will fail to tackle it while being antagonistic in Europe – our largest trading partners. Or maybe this time it’s different…?
People assume I am right wing because I keep wanting to cut social security. But my primary motivation for that is just that we need to cut the deficit and it is the largest slice of the pie, by some distance. So you need a smarter response than just to suggest cutting traditional right wing shibboleth items like defence instead. Because I don’t care. I think probably it would be good to help people in Afghanistan and Iraq, and maybe we do have a security threat emanating from those place, but we probably have to take that risk because we haven’t got enough money for two new aircraft carriers and a Trident replacement.
The second reason for cutting social security is derives from the question: ‘what is it good for?’ I know what I get from the NHS and the Education spend. Both are public sector monoliths which probably waste 1/3 of the money put into them, and we should fix that. But that doesn’t mean that you don’t get a benefit from every pound you put in. In education, you could double the spend and still get results. The law of diminishing returns would only bite seriously when you got to to gold plating levels. But we are a million miles away from that. You could give every child in the country 13 years of one-to-one tuition with a specialist graduate teacher paid £60k plus a £10k bonus per A-grade and you would see immense benefits from that. Likewise with the NHS – put money in, and people will live longer and better. What do I get from social security apart from bribing people who can’t be bothered to feed themselves not to chuck a brick through my window? Why isn’t it a protection racket?
So what does the document say?
“Both parties inherited large structural deficits from their predecessors: 4.8% of national income in 1978–79 and 2.8% of national income in 1996–97.”
“By year 11 of their terms in office, both governments were recording exactly the same structural deficits: 2.6% of national income in both 1989–90 and 2007–08.”
Here’s the problem:
Now the standard left response here is to say that the way this gets completely out of hand after year 11 of the Labour administration is because the bankers are responsible for a global financial crisis. In which case I desire you to point me to the section of the pie charts in
cuts which show bank bailout spending, and also why it isn’t true that the first sign of the crisis was a crash in subprime mortgages in the US. Some bankers may be to blame for that, but not I-banks, and it has more to do with excess saving by the Chinese than anything else. But there is plenty of material in the document for you to use against me if you disagree. I think it’s wrong though, primarily because the situation had got out of hand before the crisis and all of that money will come back and may even make a profit.
“On the eve of the financial crisis, the UK had one of the largest structural budget deficits among either the G7 or the OECD countries and a higher level of public sector debt than most other OECD countries, though lower than most other G7 countries. Most OECD governments did more to reduce their structural deficit during the period from 1997 to 2007 than Labour did. This fiscal position formed the backdrop to the financial crisis.”
That wraps it up for me. So what’s the answer? Slay an equal number of sacred cows on both sides. Cut defence, though it’s only £38bn so it won’t help much. Cut the NHS – even though that will do damage, it is better than cutting education in terms of being economically adverse. Do not cut £1bn out of science spending – it is futile and about the most disadvantageous choice available – the leverage multiple on that will be higher than elsewhere. Leave education spending alone. Which again, only leaves social security as the major source of cuts.