Cameron's new cuts narrative
Fraser Nelson 5:34pm
Aside from the "Calm down, dear" drama, there was something else worth noting from today's
PMQs: David Cameron trying for a calmer debate on the deficit. He admitted that his government is not really being that much more aggressive than Gordon Brown would have been. They're cutting
£8 for every £7 that Brown and Darling proposed for 2011-12, he said. It's a line that Nick Clegg road-tested in his speech to the IPPR last week, and it represents a new and welcome strategy. To date, the
rhetorical differences have been stark. The Tories have said: we’re the big bold cutters, Labour are deficit deniers. Labour has replied: your cuts are too deep and too harsh, and the GDP
figures prove it. Cameron is taking this to a new, more subtle position, and the facts are on the side of the PM and his deputy. Here are a few of them:
1. Osborne is not cutting deep and fast, as Balls claims. All he’s done is taken Labour’s trajectory of mild overall cuts — in Darling’s last Budget
— and cranked it up a notch. Many countries, when they face a fiscal blowup, make deep cuts at the beginning to get the pain over with. Osborne is proposing cuts which total 3.6 per cent
— hardly a vast amount. And, crucially, he’s stretching them over four years. Obama proposes to cut a little faster than Osborne: 4.2 per cent over two years. But he wants to do most of
it, 3.8 per cent, in 2011-12 alone, before returning to spending growth. So the pain is front-loaded. This is a fairly common course of action. The last time Britain had a major fiscal blowup
was in 1977-78, after the IMF bailout. Labour’s Denis Healey then cut more in that one year than Osborne is doing in four:
Osborne is not front-loading the pain. If anything, his cuts will be deeper towards the end of the Parliament. He has rejected the "get it over with quickly" approach, instead adapting
Labour’s original trajectory. The difference between his cuts and those proposed by Darling is just under 1 per cent a year. Economically, there is no great chasm between the two parties
— although they have both pretended otherwise. Darling’s published plans would have cut the deficit (aka, public sector net borrowing) by 60 per cent over five years. Osborne plans 74
per cent.
2. 0.6 per cent: the missing metric in the cuts debate. Isn’t it odd that so many people talk about cuts without ever attempting to quantify them? That’s because this
would spoil the whole fun. Total state spending is due to fall by 0.6 per cent over the financial year which has just begun. Then 1.1 per cent, 1.3 per cent, and, finally, 0.8 per cent in 2014-15.
Oddly, these figures are not included in the (extensive) Budget documents. The basic question — ‘how much is the government cutting in total?’ has no answer. Little wonder
it’s open to such misrepresentation. Cameron did very well to quantify his 2011-12 cuts in relation to Darling’s. His next step should be to give the overall cut figure of 0.6 per cent,
and let people decide for themselves if this is unduly harsh.
3. The real economic stimulus is the collapse of sterling. This happened two years ago, but the pound has not really recovered and the growth in the manufacturing sector is
extraordinary — as are the expected price increases. The last time so many manufacturers reported hiring extra staff over the previous three months was 1974. The CBI survey yesterday showed
that the number of manufacturers planning to add capacity is at the highest for 30 years:
4. Private sector growth is on the up. Cameron is right to be frustrated at the BBC’s description of the economy as in a state of cuts — although it will obviously feel like that to a bureaucracy whose own budget is being cut. Aside from the fiscal point, above, however, the fall in state payroll is being more than offset by more private sector work. But the government doesn’t make this point very well (even we had to fish the below stats out of the small print of the OBR's Budget document). Again, Cameron went some way towards addressing this problem in PMQs saying that there are 390,000 more jobs in the private sector than a year ago. This is the right metric to keep quoting, as the below graph shows:
5. Anyway, you can’t read too much into quarterly GDP data. A post-recession economy zigzags its way to recovery. And the biggest problem of all might well be that when the
economy recovers — and those manufacturers look for the skilled labour they say they lack right now — it just sucks in overseas workers rather than shortening British dole queues. The
IDS/Grayling medicine is the right one, but it will take two terms to implement. So the real economic problem may be one that is as yet undiagnosed.
After a year pursuing the "sharp cuts" narrative, it’s not clear how successful Cameron will be is gearing his rhetoric towards "modest cuts"— but the facts are on
his side. He could have chosen to front-load the pain (like Obama/Healey), but has taken the Darling course of spreading it. One can debate the economic merits of this, but there’s no
political capital to be gained from his fiscal leniency if no one knows about it. First Clegg tried to spread the word, now Cameron and Osborne may well join him. All will have worked out that the
recovery will not (as they perhaps thought at first) tell its own story. As John Major found out, this is untrue. Numbers never speak for themselves: they need to be ventriloquised. This is Ed
Balls’ speciality.
Previous
Anthony Zacharzewski
April 27th, 2011 6:08pm Report this commentInflation is the missing word here I think, particularly around the competitive devaluation issue.
Private Schultz
April 27th, 2011 6:11pm Report this commentThanks for an intresting piece of substance on today's PMQs - about the only one I've seen.
annassasin
April 27th, 2011 6:16pm Report this commentPerhaps Dave should tell the bbc to calm down dear, or just shut up. It has never mentioned that spending is still going up. Construction is falling why? Because the banks will not lend why? Because they will go bust if greece and Portugal default. Stop moaning and start exposing the difficult reality. Explain why employment is improving, yet the education/attitude problems with young people mean that 2/3 of new employees are (imported). Britain cannot be rebuilt in a day.
Then there is Labour, Balls & Brown would be in jail for fraud if they were in the private sector. So Miliband should shut up, an abject failure as energy sec. & useless as a shadow pm, despite all the problems/cockups of the coalition, he barely leads in the poles, when he should be 10 points ahead.
Rant over, for now.
Woody
April 27th, 2011 6:18pm Report this commentHow is Cameron or the conservatives going to get this message across?
Whether by design, or accident, they are absent from our TV screens. Even when they do appear, they sit there like meek little lambs, never taking on their interviewer, or their constant interruptions.
We need some robust attack dogs, who won't put up with any nonsense from the media.
Phil Chuds
April 27th, 2011 6:28pm Report this commentLabour are digging a huge hole for themselves , opposing everything with tribal opportunism . If the economy picks up , as seems likely , Labour will still say they are wrong , showing the same , reluctance to see the truth as the flat-capped thicko's up north who vote for them through thick or thin.
normanc
April 27th, 2011 6:43pm Report this commentI'd have been all for front loading the cuts as I think it would have been easier than in the 2 years before an election but you can see why those of a Keynesian bent, as the majority of Parliamentarians now seem to be, preferred this course.
At least they're being honest now though, which is a huge step in the right direction. Why couldn't they have been straight with the public in the first place rather than trying to portray themselves as Milton Friedman on steroids when the 'cuts' were nothing of the kind?
Andrew Fletcher
April 27th, 2011 6:50pm Report this commentEver get the feeling that this country is slowly but surely declining - regardless of who is in power and what the specific policies are??
As is pointed out here the differences between the 2 parties is negligible
We are more comfortable looking into the past (royal weddings etc) rather than attacking the future (low tax, open markets etc)
We are increasingly becoming a Heritage theme park staffed by hardworking foreigners
I also don't really believe that the IDS and Gove's reforms (designed to alter this scenario) will actually have the desired impact (they will be lost in a maze of bureaucracy and legislative challenge)
The Lansley plans are already effectively dead
A real sense of slowly but surely going to the dogs
Boudicca
April 27th, 2011 7:16pm Report this commentLet's face it, even the small cuts Cameron is making are being reversed by the demands from the EU for Budget increases and bailouts to the PIGS.
And with Cameron handing over millions to Pakistan and any other 3rd world hell-hole that sticks a begging bowl out, it will be a minor miracle if any reduction of any description is achieved.
It is time to put the UK's interest first - and that means getting out of the EU.
oldtimer
April 27th, 2011 7:20pm Report this commentThe only people who have suffered cuts so far are the voters. Their involuntary cuts in real income have been delivered via tax increases and inflation increases. The whingeing and whining of the public sector is now beginning to sound a little tedious.
The real reason for this post is to express disappointment that you did not share with us your holiday reading decisions. After all you had a magnificent selection offered to you last week. The least you can do is to tell us what you enjoyed and would now recommend for the rest of us.
Magnolia
April 27th, 2011 9:45pm Report this commentSo we've got 'Socialism Light'(or Lite) rather than Labour's 'Socialism Dark' have we?
mattghg
April 27th, 2011 9:57pm Report this commentI agree with Private Schultz: finally something substantive.
yank
April 27th, 2011 10:11pm Report this commentThere's just too much blown smoke in this blogpost. Let's try like this:
1. Dave and the wets were lying about all the "cuts". They love the Blairist state, and are struggling to preserve as much of it as they can.
2. Government inflationary policy is the stealth tax being used to pay for Dave's continuation of the massive Blairist state, which won't be cut.
3. Currency devaluation occurring long before Dave and the wets came on is responsible for any economic movement today, if any (and by the looks of the growth numbers, there ain't any)
4. 390,000 jobs created in one year, particularly a year moving out of a recession, is pitiful. You're posting a future prediction chart as to job creation simply because there is nothing much to show for your pet Cameroons today. Public employment is predicted to remain the same in the near future years, and private employment may go up. Maybe.
5. Yes, the recovery will not tell it's own story. But first, the recovery has to start. It hasn't. Right now, it's Cameroonian stagflation, all day every day.
Lids
April 27th, 2011 10:20pm Report this commentI am sitting here in the States as I write this. Watched Ben Bernanke give his first press conference. Relegated inflation to a minor concern then watched on the screens as gold and silver spot prices shot up. People have stopped believing in him. Just as they have B o E here in uk. Not sure Cameron is capable of making headway on this issue. Our currency is bust.
TrevorsDen
April 27th, 2011 11:45pm Report this commentIts always interesting at these times to listen to people talking about what they know nothing about. Not least yank. In the light of endless years of Labour spin I think it is commendable for the govt to simply get on with it. A pity the media and BBC cannot as an alternative be objective.
Labour ARE deficit deniers, they became deficit deniers once they became the opposition. In fact in govt. they were all deficit deniers as well, except Darling.
The fact is the government are saying they wish to eliminate the structural deficit over the period of this parliament. My memory is Labour were talking about cutting half the deficit.
So where does that leave us. A start is to examine just what is the structural deficit, difficult I know because Gutman says there is none.
The ultimate reality is that
in 2001 the national debt was £312 billion
in 2007 the national debt was £500 billion
That was just for starters. That level of deficit spending cannot be sustained.
There is no free money tree. 13 years of labour squandering money in peacetime has left us with this huge debt.
It will take a generation of careful husbanding of our resources and making do with less to sort it out. Just like what the NHS is now doing.
Labour's response is crass.
TomTom
April 28th, 2011 8:18am Report this comment"but you can see why those of a Keynesian bent,"
Political sloganising. Read Keynes Treatise on Money and learn. The simple fact is there is NO Supply-Side policy to create more viable companies and improve infrastructure. The WHOLE focus is on saving moribund financial dinosaurs and letting them extract REAL resources from the population just as the Public Sector burdens them with more taxes.
The problem in Britain is EXCESS DEMAND relative to Production both Public and Private. The Welfare State is insolvent and has been funded with magic money for 3 decades.
The greatest Expansionary Project in peacetime history is Debt Monetization to bail out Banks and Government at the expense of Voters
Sir Everrad Digby
April 28th, 2011 1:23pm Report this commentMr Yank,
'There's just too much blown smoke in this blogpost' a self criticism no doubt.
So many words, so little to say. Argue about the future by all means but it is by its nature uncertain;why then,do you speak with such certainty on the subject? You can no more predict events than I can -but I would not presume to do so.
Economic predictions often prove to be even more unreliable,so debating them seems pointless. The myth of Sisyphus is reborn.
yank
April 28th, 2011 3:32pm Report this commentOh no, Mr. Digby, unlike this blogger's post, which is "predicting" employment growth, I'm not "predicting" stagflation, or anything else economic. I'm staring right at the stagflation... right now... in real time. The stench of it is all around, in fact.
AF
April 28th, 2011 5:12pm Report this commentT.D.
Well said.
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