With billions slashed in the comprehensive spending review, Prospect writers offer their own ideas—like scrapping defence and charging people to vote—about how to cut the deficitby Prospect / March 22, 2010 / Leave a comment
Britain’s GDP is roughly £1.2 trillion. The state now consumes about half of it, or £600bn. Experts say we must cut 10 to 15 per cent of this public spending—a hefty £100bn—right now or in a year or two. Some want this gap between spending and income partly closed with tax rises—but there is a broad consensus that, even with such measures, deep cuts are needed.
The December 2009 pre-budget report put Britain’s public borrowing at £178bn, and laid out vague plans (beginning only after the election) to halve it by 2013. But the March 2010 UK Economic Outlook report, from PriceWaterhouseCoopers, claimed only £20bn of further cuts could stop an “adverse bond market.” Put simply: cut deeply now, or suffer a crisis of financial confidence later.
What’s the answer? The most traditional is often derided as “salami slicing,” meaning that a little bit of spending is cut everywhere. This has the advantage of sharing the pain, but doesn’t tend to cut the most ineffective parts of government.
A second option is the “Canadian model,” promoted in Britain by the Institute for Government. This involves a “programme review” in which all state services are examined and the worst-performing dropped. The problem here is politics—these ineffective parts are often favoured by politicians, or popular with voters.
Ireland recently charted a third path, by letting the axe fall not on services, but on workers—asking public sector staff to take an average 7 per cent pay cut.
Markets have, so far, reacted relatively calmly to a sharp deterioration in public finances-—total debt as a share of GDP has risen from 40 per cent in 2005, to an estimated 82 per cent in 2011-—in part because even such striking figures are not extreme, either by international standards or in relation to past British experience.
The markets seem to feel that, in time, the government will get its house in order, and raise enough money from taxpayers to service its debt. But this is not always the case. Many countries, like Argentina and most recently Greece, have come under pressure from financial markets if their public finances seemed unsustainable. James Crabtree, associate editor
Cut middle-class benefits
Why not cut the bit of the state that the public wants reduced: the benefits bill? It needn’t hurt the worst-off. Start by making sure no benefits go to those who don’t need them. Take the child tax credit.…