Monday, May 24, 2010

Balancing the Books

Chancellor George Osborne has outlined plans to cut £6.2bn "wasteful spending" to start to reduce the budget deficit.

This is exactly as outlined in the Conservative manifesto and in posts on this blog during the election: there will be cuts to quangos, spending on consultancy and big IT projects and a civil service recruitment freeze.

Child Trust Funds will be axed by January but funding for schools and Sure Start will be protected, said the Chancellor.

Of the cuts identified, £500m is to be reinvested in further education, apprenticeships and social housing, leaving a net spending cut of £5.7bn - less than 1% of total government spending.

The savings will break down as:

* £1.15bn in "discretionary areas" like consultancy and travel costs, £95m through savings in IT spending, £1.7bn through delaying/stopping contracts and projects and renegotiating with suppliers

* £170m from reducing property costs, at least £120m from a civil service recruitment freeze and £600m from reducing quango costs and £520m from other "lower value" spend.

The biggest cuts by department are £683m (4.6% of departmental budget) at Transport, £780m (7.2%) at Communities and Local Government, £836m (3.8%) at Business, £670m (1.1%) at Education and £325m (3.2%) at the Department for Justice.

Nobody likes having to make savings, but the outgoing Labour government left this country bankrupt, spending four pounds for every three pounds of income. Then £6 billion of cuts announced today represents about 1% of government spending, and there isn't a business in the country that hasn't made larger savings than that to deal with the recession.

Unfortunately it will not be enough - as a BBC journalist pointed out this evening, these saving is less than a tenth of what the outgoing Labour chancellor admitted is necessary. Further economies and difficult decisions will be necessary to deal with the huge debts and defecits which are Labour's disastrous legacy.


Tim said...

Firstly, these large debts have far more to do with the collapse of global capitalism and the crookidness of American bankers than the Labour party. My problem with Labour is their wiilingness to kowtow to such an obviously corrupt system.

If you're looking for more savings then try foreign aid. Why do we give money to India and China when both these two posess nuclear weapons and have space programmes ?

Try leaving the EU - saving £15 billion per year, let's deal with Europe on the same basis as Norway and Switzerland.

Chris Whiteside said...

A little over half of the defecit is due to the recession, and you can blame some of that on the bankers if you wish, and another part of the debt came from having to bail out the UK banks. However, given that the regulatory system which Gordon Brown put in place while chancellor was a contributory factor to the banking crisis, I don't think he can escape a major part of the responsibility for these aspects of Britain's national debt.

However, the "structural defecit," e.g. the amount by which the British government would be spending more than its income in neutral economic conditions (neither the boom nor bust that he wrongly claimed to have abolished), is estimated to have built up to £60 billion on Gordon Brown's watch. This is far too large to be sustainable, it is the other reason for the huge increase in the National Debt, and there is no possible way that Brown or Labour can pretend to any intelligent person that this is not their fault.

On the EU:

I don't buy into these estimates that we would save a fortune by leaving the EU. The exact consequences would depend on the terms on which we left.

We could try to recreate EFTA with Norway and Switzerland, but the danger is that we would still find outselves forced to comply with EU rules to protect our trade while no longer having a vote on what those rules should be.

On foreign aid: there are other countries where this would potentially do much more good than China.