Clarke calls for £30 billion in additional cuts

Ken Clarke has today revealed more details of the Conservative party’s planned approach to public spending. He told the BBC he wanted to see the fiscal deficit reduced to 3 per cent over the next parliament, in line with the EU’s preferred approach. The policy would imply up to an additional £30 billion in cuts.

On BBC News 24 this morning, Clarke continued a theme from his Today programme interview this morning with Chief Secretary Liam Byrne. Referring to the European Union’s assessment that the UK should bring the national deficit below 3 per cent by 2014-15, Clarke said:

“[Gordon Brown] always claims that any alternative to his own policy involves some figure plucked out of the air of billions of pounds worth of cuts…

“A new Government is required to start cutting spending now, get rid of wasteful spending, and to continue to get onto the perfectly sensible target of 3% of GDP for a deficit which was the rule I had when I was Chancellor.”

The Treasury’s projections in the pre-Budget report show that the Government is set to reduce the “Treaty deficit” – the preferred EU measure – to 4.6 per cent by 2014-15. Given projected nominal GDP of £1,841 billion in 2014-15 (Table B1), the implied reduction of 1.6 per cent of GDP is equivalent to £29.5 billion.

On Today, Clarke got confused about whether the Conservatives would remove the entire structural deficit or the “bulk” of it. Paul Waugh later tweeted that the shadow business secretary backtracked in an interview on Sky News. Clarke also called on Today for “the kind of public spending round that I had when I was Chancellor”.

UPDATE 09.31, 17/03:

On her BBC blog, Stephanie Flanders writes:

“On the big macro question of this election – cutting the deficit – the Conservatives have actually given us less detail than Labour. yes, they have offered micro tasters: a few benefit cuts here, a public sector wage freeze there. We haven’t had many of those from the government.

“But on the basic question of how much they hope to cut the deficit over five years, Labour has a clear answer. With numbers attached. The Conservatives do not. If Ken Clarke, probably the most experienced – and certainly one of the most economically literate – members of the shadow cabinet, cannot stick to a single answer in the course of a 10-minute interview we can be fairly sure they haven’t got one. Or at least, not one that is ready for prime time.”

http://twitter.com/houseoftwits/status/10569171552 House Of Twits

RT @leftfootfwd Ken Clarke calls for an additional £30bn in public spending cuts http://bit.ly/akzvHY
http://twitter.com/shamikdas/status/10569239408 Shamik Das

Ken Clarke calls for an additional £30bn in public spending cuts http://bit.ly/akzvHY reports @wdjstraw on @leftfootfwd
http://twitter.com/nikdarlington/status/10569864555 Nicholas Darlington

RT @leftfootfwd: Ken Clarke calls for an additional £30bn in public spending cuts http://bit.ly/akzvHY
Steve in Somerset

It is the policy of the EU that deficits should not exceed 3%. Are you suggesting that Labour’s love affair with the EU is over and we should not comply?
http://twitter.com/georgeeaton/status/10582429368 George Eaton

RT @leftfootfwd Ken Clarke calls for an additional £30bn in public spending cuts http://bit.ly/akzvHY
Mr. Sensible

Steve, it remains the view of the large majority of economists that if you cut too soon you risk tipping the economy back in to recession.

And if that happens you do not cut the defecit.

What works better is to make sure the recovery is sustainable and then embark on a sensible program to cut the debt.
Mr. Sensible

At any rate, if we need to cut spending so soon, why are the Tories managing to find the money for their ridiculous married couples allowance?
El Sid

Mr. Sensible – it’s fair from clear that it is possible to “cut too soon”, it’s certainly not the view of a “large majority” of economists. A simple majority maybe, but you can find respectable economists calling for positions all across the spectrum. Which probably tells you that noone really knows for certain, we’re in uncharted territory.

We do know for certain that this is not free money. Every extra £10bn we borrow in structural debt is a promise to take ~£500m out of the British economy every year for eternity – and by the end of this cycle we could be handing over £800m/year or more to the speculators in the bond market for every £10bn they choose to lend us. That loss of £500m/year reduces economic activity and takes jobs out of the economy, maybe 50,000 or so.

So whilst we are running a structural deficit, every £ of additional government spending will definitely cost us jobs in the long term. So you must make sure that each extra £ is working hard for the long-term good of the economy, it’s no good frittering it away on short term feel-goodness. If we still had headroom on the cyclical deficit then Keynsian make-work would be cost-effective, but we’re way past that stage now. In other words – even now we still need to stick to the golden rule, only investment spending should be considered beyond the cyclical budget.

Also, not all government spending is equal. By changing priorities towards economic growth, it would be possible to reduce total government spending yet increase government stimulation of the economy. It’s the latter that matters, not the level of spending per se.

In fact there’s some well-researched cases of cutting government spending in itself stimulating the economy as private capital flows in as the government’s credibility is enhanced. Look up “negative fiscal multipliers” – the government doesn’t have to be the one supplying the cash to stimulate the economy.

On the MCA – AIUI the Tories aren’t planning to introduce it whilst “cutting so soon”, they’re talking about a £600m version for those with kids under 3, some time within the next parliament. By 2015 the economy will be booming right? In fact the government figures are relying on the economy growing by >3%/year within 9 months. Which is just fantasy, and there’s no point in the other parties trying to run numbers to try and match them. Hopefully the Budget will see more more plausible updated numbers. I’ll remind you of Brown’s past attempts at forecasting deficits. His original number for 2007 was just over £20bn, nearly half the outcome – and you can’t blame any financial crisis for that!
http://www.leftfootforward.org/2010/03/look-left-the-week-in-fast-forward-19-03-10/ Look Left – The Week in Fast Forward | Left Foot Forward

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