If we are to be hauled back from the brink of ruin, the Conservative-led Coalition will need to introduce something far more radical than short-term nifty housekeeping. Its goal must be nothing less than the recalibration of a collective mindset. Those who want it all, demand it now, and expect to pay later – or, better still, hope that someone else will – have run out of road. For the Dick Turpin generation, next stop is York Assizes. The game is up.
According to Dr Tim Morgan of Tullett Prebon, a City broking firm: “Western societies have been succumbing to a psychology which decrees that tomorrow doesn’t matter, at least until it arrives… An excessively relaxed attitude to debt is the real problem, applying pretty equally to governments, businesses and individuals… Borrowing means over-consuming now at the expense of under-consuming later. Welcome to ‘later’.”
As Voltaire noted: “The art of government consists of taking as much money as possible from one class of citizens to give to the other.” This was not lost on Gordon Brown, who pilfered from the old (he raided their private pensions) and burdened the young (he loaded them with debt) in order to buy the votes of his recipient class. The upshot is that the state’s stock of debt is rising exponentially – and the cost of servicing these obligations is becoming obscene.
Closing down this in-hock horror show will require a demonstration of political courage not witnessed since Geoffrey Howe’s 1981 Budget, when he took on a consensus of academic economists and know-alls. In so doing, he succeeded in reducing inflation from 11.9 per cent to 3.8 per cent in less than two years. We cannot be sure that Mr Osborne and his unlikely ally in the Treasury, Danny Alexander, are made of such unbending material, but yesterday’s pre-emptive strike on Labour’s excesses augurs well.
Hitherto, the debate over public spending cuts has centred largely on back-of-the-sofa money. The extent to which Mr Brown and his cheerleaders were able to deflect attention from their gross irresponsibility can be gauged by the poverty of argument during the election campaign. It all boiled down to £6 billion. Mr Brown claimed that Tory plans to take this sum “out of the economy” would somehow wreck Labour’s caring, sharing nirvana.
This was ridiculous: £6 billion is less than half of 1 per cent of Britain’s GDP. Even for prudent chancellors, it’s not much more than loose change. In order to prevent our national solvency from being overwhelmed by debt, Mr Osborne must cut public spending by many times that amount. If he merely achieves the goal set out by his predecessor, a halving of the UK’s annual £155 billion deficit by the end of this Parliament, the total amount we owe will double to £1.4 trillion, implying interest charges of about £70 billion a year.
Think of how your credit card works. Paying off no more than the minimum each month results in the outstanding balance becoming bigger and bigger, until the limit is breached and the issuer withdraws the facility. At some point the UK’s lenders will lose patience. To believe otherwise is delusional.
So where should Mr Osborne start? What about his local Boots, for a pair of earplugs? These would block out hysterical voices from the Opposition benches, screeching that a smaller state leads inevitably to a diminished economy – and, therefore, to permanently higher unemployment. This argument has the credibility of the Flat Earth Society, but not its charm.
As the Institute of Directors explains: “We don’t think rapid deficit reduction based on lower spending will undermine economic recovery… There is very strong evidence from economic history over recent decades that we can have an expansionary fiscal consolidation. The immediate direct impact of lower public spending is to lower GDP, but indirect effects quickly kick in to raise private-sector spending. The silver lining here is that tight fiscal policy might help maintain near-zero interest rates for years, not months.”
Mr Osborne must resist those urging punitive, direct taxes on anyone who works for a living and has the cheek to be successful. Labour leadership candidate Ed Miliband wants the temporary 50p “supertax” to be permanent. “It’s not about reducing the deficit, it’s about fairness,” he says. When high taxes become an ambition – an end, not a means – we are in deep trouble. From there, it’s only a skip and a jump to Soviet-style dirigisme.
On the Treasury’s excellent website, there is a chart that shows projections for government spending and how it is sliced up. At the time of the last Budget, three months ago, by far the biggest item for 2010-11, at £196 billion, was “social protection”. This has nothing to do with national security or the police. It covers welfare and public-sector pensions, and accounts for more than we commit to public order, safety, housing, the environment, industry, agriculture, employment, defence, transport and personal social services added together.
Even the NHS, which gobbles up £122 billion a year, pales alongside the tax-consuming capacity of social protection. If Mr Osborne is serious about overcoming the pernicious effect of a welfare system that rewards the feckless, subsidises the workshy, penalises the thrifty and punishes those who prefer self-support to state handouts, this looks a good place to start. Social protection, a ghastly Labour euphemism, devours 36p of every £1 raised in taxes, compared with 16p by education and just 7p by defence.
The usual suspects will, of course, protest that reductions in any department represent evidence of the new government’s callous approach to the needy. But for those who oppose a crackdown, this week brought a timely reminder of the state’s disgraceful indulgence of welfare‑guzzling layabouts: the case of Shannon Matthews, the little girl who was “kidnapped” by her own mother in cahoots with a male associate.
Working out how to protect victims such as Shannon, while discouraging her repulsive guardians from wallowing in state-sponsored idleness, will not be the least of Mr Osborne’s challenges.
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