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In 2010 British public sector borrowing will be £175bn—more than the health and criminal justice budgets combined. The “structural gap” in our finances, after spending on the recession, is £90bn a year. And government figures now imply that reducing this gap will have to come mainly from cuts, not tax increases. The rows over public spending have barely begun.
Britain has been here before. The Institute for Fiscal Studies thinks our late 1970s fiscal hole was larger than today’s. Back then, our debts were eased by inflation and the windfall of North sea oil. Yet even these didn’t stop the winter of discontent, the defeat of Callaghan and Labour’s breakdown into open warfare. Chris Hood, professor of government at Oxford, also sees parallels with the early 1920s, when a recession led Lloyd George to cut budgets bloated by war and liberal welfare policies, slashing roughly £100bn in today’s terms.
In both cases some areas, such as health, were protected. Defence bore the brunt in the 1920s; capital spending, education and local government did worst in the 1970s. Yet even if history says belt tightening is possible, can a Whitehall machine accustomed to year-on-year funding increases suddenly deliver savings? As one senior Treasury figure put it: “I am confident that we can deliver any given number…. but I am much less confident that the right things will get cut.”
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