Peter Hoskin

A salesman for the cuts

A salesman for the cuts
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One of the biggest problems facing the coaltion has been presentational: how to sell the cuts? In the absence of a coherent, vigourous message, the Balls school of economic thought has been allowed to grease onto the scene – to the extent that some polls have three-quarters of respondents rejecting the government's deficit reduction plan. But now, at last, signs that the coalition is getting into gear. It's a process which began last week, when Matthew Hancock – a new Tory MP and former adviser to George Osborne – highlighted falling interest rates in Parliament (column 606, here); a point he has been pushing around Westminster ever since. And today Hancock expands on it in an article for the Times (£). Three passages are worth pulling out, not least because I expect we'll hear these arguments repeated again and again in coming months:

1) The current benefits of cuts.* "Market interest rates have fallen. This week the rating agency Moody’s said that the UK’s AAA credit rating is safe because of the Government’s action. Interest rates for government borrowing for two or three years have halved since the election. Lower interest rates both save money and stimulate the economy. I grew up in a family that ran a small business, so I know just how much businesses benefit from lower interest rates. Homeowners benefit from lower mortgage rates, which matters even more since household debts are the highest in our history."

2) The future benefits of cuts. "A study in 2003 by the European Commission found that of 74 consolidations examined, in 43 cases growth accelerated. In the mid-1980s, Spain, Portugal, Denmark and Ireland all had to rein in large deficits and their economies grew as a result. Finland, Sweden and Italy found the same in the mid-1990s. After the large cuts made by Canada in the 1990s, its economy then grew. More recently, after tackling its deficit, Sweden is growing at more than 4 per cent."

3) The scope of the cuts. "But if the hole is so much bigger won’t the cuts hit more? I looked at the numbers. GDP grew by 1.2 per cent in the last quarter. By contrast the extra £6 billion cuts this year announced by the coalition amount to 0.1 per cent of GDP per quarter. Over the next five years, the scale of the extra cuts is the same. Compare that with the huge boost from showing the world we have got to grips with our finances. After all, the size of the State and the size of the economy are not the same thing."

It's that final sentence that really captures the eye: simple, intellectually self-confident and brutally opposed to Brownite thinking on these matters. As Danny Finkelstein said in his column (£) yesterday, there's significant evidence that "voters don’t really know what the deficit is, what it actually means". From the coalition's perspective, Hancock's arguments should help fix that gap.

*Admittedly, challenged by Left Foot Forward here.