Today’s newspapers disclose that Cabinet members have received letters telling them to expect 10 per cent cuts to their budget in the next spending round. This will have been a letter designed to be leaked, and to establish a negotiating position. The Times says that the real figure is closer to 8 per cent, as I disclosed in my Daily Telegraph column three weeks ago. It was the 8 per cent figure which set off the chain of events which led to Theresa May’s leadership-style speech. To recap, here’s what happened first time around.
The problem came when Osborne asked ministers to make further cuts of 8 per cent in their budgets. This blindsided three Tory Cabinet members: Theresa May, the Home Secretary, Chris Grayling, the Justice Secretary, and Philip Hammond, the Defence Secretary. All have spent three years cutting their departments to the bone – while the Department of Health, fed like a foie gras goose in the Labour years, was not required to slim down at all. Most ministers had put this down to the hangover from election pledges, made in desperate times. “We’ve been prisoner to George’s rhetoric,” says one. A new, dispassionate Spending Review, they hoped, would take account of which departments had been stuffed with cash during the Brown years – and which ones had been neglected. Defence, justice and policing did not especially profit from Labour’s years of unbuttoned plenitude. A 2 per cent cut in the welfare budget, for example, would be enough to protect all three departments. Normally, this trio would have made their case in private to the Chancellor. But they decided, this time, to go rogue.
They are just as angry now, and with good reason. George Osborne ignored the main lesson of Canada’s very successful fiscal consolidation: that there should be no sacred cows, all departments should be cut. Under the coalition, there has been a farmyard of sacred cows. Health, the biggest department which accounts for a quarter of departmental spending, has been protected. Foreign aid is being vastly increased. Such protection concentrates pain on the politicaly-vulnerable departments which deal with unpopular tasks, like locking up crooks or fighting wars. Such departments did not well out of the Labour years, and suffered the most this time.
We at CoffeeHouse have been trying to look at it this terms of years. Will it be the case, for example, that the NHS budget will be at a record high but the police will see their budget pushed back to 1980s levels? It is, alas, impossible to tell because the accounting rules have changed, the trail has been broken. But the rejection of needs-based approach to spending cuts, in favour of a strategy that allows politicians to boast about ‘protecting health’ at election tine, does run the risk of grossly unfair budget settlements.
This is made worse by the way this coalition operates. The crucial decisions are being made not by the Cabinet but the “Quad”: David Cameron, George Osborne, Nick Clegg and Danny Alexander. The LibDems have 50pc of the power, not bad for a party with just 9pc of the parliamentary seats. Tory Cabinet members find themselves negotiating not with the Chancellor, but with a Quad which has no constitutional basis and vastly amplifies the power of the junior coalition partner. The LibDems, of course, have their own sacred cows. Specifically, the LibDems have rejected a welfare freeze and insisted on a 1pc rise. This means more pain for police, prisons, etc.
So the Spending Review debate is being conducted in public because the Tory ministers believe they need to unite not against Osborne but against the Quad. We can expect much more wrangling before the Spending Review is announced on 26 June.
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