These spending plans are not strategic

Prospect Magazine

These spending plans are not strategic

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Today’s spending review suggests the budget may not be balanced until the Parliament after next

A classic case of salami slicing (© Carsten aus Bonn)

George Osborne’s prolonged, almost agonised, efforts to eliminate the budget deficit are now definitely of the “salami slicing” rather than “strategic” variety.

In his spending review today, he was trying to squeeze just a little bit of cash from a multitude of different sources. The lessons from other countries – most notably Canada and New Zealand – have been that a successful fiscal consolidation requires a government to decide which areas of government activity it is going to extinguish altogether, rather than falling back on the old chestnut of “efficiency savings” and seeking to trim state expenditure in a wide range of departments by a fraction or on the margins.

The continuing sluggish performance of the economy–thanks in no small part to the coalition’s inability to embrace radical supply side reforms–means we may now be facing a situation in which the government fails to balance its books until the Parliament after next.

By refusing to seriously tackle the three largest areas of spending – health, education and welfare – before 2015, the coalition has bizarrely ring-fenced areas of spending which have grown substantially over the last decade or two. Surely, it would be rational to earmark the departments which have experienced the biggest growth over recent years for the biggest savings? Osborne is doing the opposite.

Quite apart from the immediate struggle to try and stop adding to our eye-watering national debt and the rate of over £100bn a year, there appears to be virtually no thought or action about the tackling the longer term fiscal problems arising from the pensions timebomb. In fact, state pensions have been specifically excluded from the future cap on welfare expenditure.

This was a spending review from a government that is managing to tread water, but isn’t managing to do much more than that.

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Mark Littlewood is Director General of the Institute of Economic Affairs 


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