Osborne’s false “trade-off”

Today’s papers cover the backlash to George Osborne’s supposed “trade-off” between cuts to welfare spending and cuts to departmental budgets.

A number of papers report the warning from the Association of Chief Police Officer over cuts to police numbers. The Scottish Daily Record says, “Tory chancellor George Osborne plans to axe benefits for 60,000 disabled Scots”. Wales Online reports, “Osborne under fire as he targets long-term sick”. Finally, a Telegraph headline outlines that, “Accept cuts or we’ll target pensions, David Cameron warns unions”. But these headlines are not inevitable or, in the words of George Osborne, “unavoidable“.

As the Table below from last week’s Budget shows, the Coalition announced plans to rapidly increase Labour’s plans to “halve the deficit over four years” by cutting an additional £24 billion from public spending by 2013-14 rising to £32 billion by 2014-15. This will see public spending cut by a total of £99 billion by 2015-16.

The alternatives open to George Osborne are two-fold. First, he could revert to Labour’s already eye-watering plans – favoured by the Liberal Democrats before the election – to cut a significant but smaller chunk of public spending. Although details of what would constitute these cuts have yet to be given by the Labour party, the overall reduction levels – which first appeared in the March Budget – had the support of the money markets. Indeed, if the coalition cuts cause the rises in unemployment and cuts to growth predicted by many, they may end up raising rather than reducing the deficit.

Second, he could change the ratio of tax rises to spending cuts so that they reflect the 2:1 ratio favoured by Labour or the 1:1 ratio favoured by Norman Lamont and Ken Clarke in the 1990s and by a number of countries embarking on similar deficit reductions. The Chancellor opted against this route in order to announce tax cuts for big businesses including the banks; cuts to employers’ national insurance; and for the Lib Dems’ regressive tax threshold rise.

The choice facing Osborne is not a trade-off between welfare spending and departmental budgets, it is whether to pursue a responsible deficit reduction programme or a form of ideological masochism.

http://twitter.com/sspcampsie/status/17322146308 SSP Campsie

RT @leftfootfwd: Osborne's false "trade-off" – there's nothing "unavoidable" about the choice the coalition has set itself http://bit.ly/9MMz52
http://twitter.com/kaschwilder/status/17322183976 Kasch Wilder

RT @leftfootfwd: Osborne's false "trade-off" – nothing "unavoidable" about the choice the coalition has set itself http://bit.ly/9MMz52
http://twitter.com/hitchineng/status/17324971442 Hitchin England

Osborne's false "trade-off" – there's nothing "unavoidable" about the choice the coalition has set itself http://bit.ly/9MMz52 via @leftfoot
http://www.order-order.com Guido Fawkes

Can you give a straight answer. Presumably you accept the case for deficit reduction, where would you find the £40 billion of scheduled Labour cuts. I challenge you to identify those spending areas. Otherwise you just full of wind moaning like some 80s loony leftie about cuts. Put up or shut up.
Will Straw

Guido,

It’s a fair question and I strongly believe that Labour made a strategic mistake by not holding a spending review before the election setting out what it would cut.

Here’s what I would do.

1) Change the ratio to 1:1 so that the £57bn consolidation is made up of £29bn each.

2) Tax increases would be Labour’s £19bn + CGT to 40% + bank levy + carbon tax tax avoidance = c£29bn.

3) Spending cuts would be 10% from each departmental Budget (including Health but excluding DfID). With DEL this year at £342bn, that gets you more than the remainding £29bn. It is, of course, right to encourage those who can work back into work but I don’t see any need to be draconian. There is, in my view, no case for means-testing or freezing benefits.

My caveat here is that I haven’t gone through the sums with a fine tooth comb so it may be able to pick at them. But you get the general picture.

Will
http://twitter.com/shamikdas/status/17326615296 Shamik Das

We've got a couple of great articles on spending cuts and the deficit on @leftfootfwd today:- http://bit.ly/9MMz52 & http://bit.ly/aEQUWA
Mr. Sensible

Agreed, Will.

These cuts are about politics, not economics.
http://bestblogs.labourhome.org/2010/06/29/osborne%e2%80%99s-false-%e2%80%9ctrade-off%e2%80%9d/ Osborne’s false “trade-off” « The best Labour blogs

[...] More… [...]
http://www.taxpayersalliance.com Matthew Sinclair

An increase in the income tax threshold isn’t regressive. That graph doesn’t show the tax cut as a percentage of income, the normal practice for this kind of analysis (the same one used in the graphs you guys have been promoting attacking the Emergency Budget for being regressive). If it did, the pattern would look very different.
Will Straw

Hi Matthew,

It’s worth downloading the report. Graph 2 shows a percentage of income pic which looks similar. The IFS analysis backed up Tim and Howard’s research. Like the overall changes in the Budget, it is regressive.

All the best,

Will
http://www.order-order.com Guido Fawkes

Passing by the dishonesty pointed out by Mr Sinclair, my comments are;

According to the dynamic modelling from the Treasury a rise above 28% would result in less, not more, CGT revenue.

Perhaps you misunderstood my question – would you cut kidney transplants or after school activities?

My question was, the 10% across the board cuts you specify, what would you cut? Long-term sick or children? You can’t credibly play this trade-off game without naming your trades, can you?

Name the programmes, stop being airy fairy. It is dishonest otherwise.

WHAT WOULD YOU CUT?
http://socialisteconomicbulletin.blogspot.com/ Michael Burke

Guido,

demanding of Will whether he wants to cut kidney transplants or after-school activities is, to paraphrase, a bit like asking him who he beats most, his wife or his kids.

George Osborne has been planning these cuts since at least the Tory Party conference. He has had innumerable advisers, including Alan Budd around him all the while and now has an army of Treasury officials. And he has announced a mini-spending round and a Budget.

But still no indication who’s for the chop, kidney patients or needy kids. Somewhat dishonest, don’t you agree?
http://www.leftfootforward.org/2010/06/politics-summary-wednesday-june-30th/ Politics Summary: Wednesday, June 30th | Left Foot Forward

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http://www.leftfootforward.org/2010/08/coalition-cuts-lead-to-slower-growth/ Coalition cuts lead to slower growth | Left Foot Forward

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