Osborne’s box of tricks

The good, the bad and the ugly of today’s spending review headlines, and I’ll leave it to you to decide which is which. ‘Cuts leave middle class £10,000 worse off’ laments the Telegraph, claiming “eight million higher earners will be hit hardest through higher taxes and the loss both of access to public services”.  ‘Axe falls on the poor‘, the Guardian disagrees, although it fails to back that headline up in its front page article. True to form, the Daily Express fulminates that ‘If Britain is so broke… foreign aid bill must be cut too’.

That, in my opinion, was one of the few bright spots of yesterday’s speech. The government will actually raise aid levels, planning to meet the long-promised 0.7% target by 2013. This is great news. I was also pleased to see that the green investment bank has survived, albeit with a rather modest starting fund of £1 billion. The feed-in tariff has been upheld, and there is still money available for offshore wind and carbon capture and storage piloting. Unfortunately those advances in emissions from energy generation could be offset by rises in transport emissions. The budget cuts bus subsidies and lifts the cap on rail fares, while investing in road building and motorway widening.

It would take someone with greater expertise than me to unpick the details of the cuts and work out their implications for social justice. Aside from some very obvious losers, the disabled who are married for example, it’s hard to know who will bear the brunt of the expense. My first impressions are at how clever the government has been. There’s no denying that the coalition has played a very, very smart game here. Here’s why:

First of all, Osborne had the good sense to put the changes to child benefit in his conference speech. If he’d broken that news yesterday all the headlines would have been about child benefit. The cut that most obviously impacts upper middle class families was cleared away in advance, softening the impact of yesterday’s speech on the Conservatives’ core voters. Top marks for political strategy.

Secondly, all the fear-mongering worked. With talk of 25% cuts and even 40% cuts at one stage, Osborne got to announce an actual average of ‘just’ 19% in the actual event. All of a sudden, the deepest cuts in spending since the second world war look moderate and restrained. Today’s indignation is mitigated by the relief that it could have been worse.

The smartest trick here though is that the biggest cuts are to local government. This is Osborne’s ‘get out of jail free’ card. While central government cuts average 19%, local government needs to find savings of 7.1% a year for four years – a rather larger 28%. That works in Osborne’s favour in several ways. It delays the bad news and shifts responsibility away from the government, while masking the damage as the rather positive sounding “dramatic shift in the balance of power from the central to the local.” Of course it won’t be Osborne that has to make the announcements as councils go away and work out what to cut. Since local councils may be Conservative or Labour or Lib Dem, the fallout will be much more dispersed.

It also means that as far as the average person on the street is concerned, the worst is possibly yet to come. We all know where we stand on taxes and benefits, but the implications for local life will only emerge in the coming months as the funding dries up for libraries, public swimming pools, playgrounds and parks, youth activities, local museums, community centres and the rest. Council services will be at risk across the board, from careers advice to local theatre funding, after-school clubs and domestic violence support, waste disposal, graffiti cleanup, adoption and fostering services, road maintenance, homeless shelters, meals on wheels. Where do you start? And just how much of that can realistically be picked up by ‘the big society’?


    1. Not directly, as the government’s approach has been to cut spending rather than increase taxes. Those on higher incomes will lose child benefits, which were a universal payment to anyone with children. An increase in VAT will also mean that the more you spend, the more you will pay in cash terms.
      In actual percentages of income, the poorest households are likely to end up paying more, according to the institute for fiscal studies.

  1. So is anyone jumping up and down about this or is just the cuts themselves?

    I can understand why it wouldn’t happen in the US but is there a cultural reason why it doesn’t happen in the UK as well.?

    BTW is it happening in France and Greece as well and Europe has forgotten about what it means to share the pain?

    1. The more liberal elements of the media are shouting about it, but the whole debate has missed the point. It’s been so ideological, the opposition has played politics with it, and it’s as if the financial crisis never happened.

      There were protests in London, and some locally. The trade unions will go to town on it, but they always do and we kind of ignore them. They’ve been rioting in France, but I don’t think it will come to that.

      I think the argument has been won basically. The average voter, and much of the media, are convinced that the cuts are unavoidable and are sucking it up. Perhaps it appeals to the latent martyrdom complex that runs through the British psyche. We shrug and get on with it, while the French take to the streets.

  2. Jeremy I think you know as well as I that the financial mess will get a lot worse than this, we have Peak Oil to deal with, and we have similar views on the end of the Golden Age of Consumption; given all this, when -not if- we get to a stage when 2/3 to 3/4 of the work force is out of work, how do you think the average Brit will deal with it?

    Raise the Union Jack,sing God save the Queen and rasie that stiff upper lip?

    1. I’m suggesting we wouldn’t riot over the spending review, which has been the case so far. In the longer term, all bets are off. I’m sure that it would get pretty ugly if we got to those levels of unemployment. I hope we’ll never get as high as 75% unemployment. Zimbabwe’s been there, so it’s not impossible, but it takes really extreme circumstances happening very fast to end up there. Peak oil is certainly likely to unfold a little slower. But yes, if we do experience a crash I’m sure the British stiff upper lip will turn out to be entirely mythical.

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