There is an alternative

By Will Straw | Published: October 20, 2010

George Osborne will stand up today and tell the House of Commons that there’s “no alternative” to the pain of his cuts. Every time he does so, he’s lying.

The alternatives available to George Osborne are twofold: (i) go slower, and/or (ii) put more emphasis on taxation. Both approaches reduce the impact of the fiscal consolidation on growth in a manner which more than offsets the additional debt interest payments. The OBR (Table C13) is clear that the difference between eliminating the deficit this Parliament and halving it in four years is just £4.2 billion – a small fraction of the overall deficit.

In September, Left Foot Forward set out a ‘responsible deficit reduction‘ plan which stuck to Alistair Darling’s timetable and adopted a 50:50 split between tax and spend. Last week, the Institute for Public Policy Research think tank published their own alternative plan. They clearly showed how departmental cuts could be reduced by following an approach that:

• reduces the underlying deficit more slowly, in six years rather than four;

• delivers a 65:35 ratio between spending cuts and taxes; and

• maintains investment on capital projects such as transport and housing at 1.8% of GDP, as this “will promote economic growth and higher employment.”

Alongside the “no alternative” fallacy watch out today for Mr Osborne:

• breaking David Cameron’s promise that there would be “no cuts to frontline services under a Tory government“;

• claiming that public spending will rise in cash terms – a dangerous argument which has drawn scorn from left and right;

• appearing to reduce the size of departmental cuts by shifting pain to welfare recipients – there may be some modest changes that are acceptable but the vulnerable will lose most; and

• claiming that the cuts are “tough but fair” – we’ve heard that one before.

Whatever the chopper Chancellor announces today, don’t be fooled.

UPDATE 11.25:

Next Left have an excellent blog looking at the key questions posed by today’s CSR including the democratic deficit of the Tory’s approach.

Meanwhile, Martin Wolf in the FT (£) calls Osborne’s plan “excessive” and estimates that it will reduce growth by “between 1 and 2 per cent of GDP, each year.”

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  • http://tangentreal.blogspot.com/ jdennis_99

    Darling’s plan consisted of halving the budget deficit over 4 years. So that would mean by the end of this Parliament, we’d still be have an annual £75billion deficit.

    We’d have to get that money from somewhere – either print it, and say hello to rampant inflation, heading towards 10% a year, or we’d have to borrow it, in which case investors would want more premium for the risk they’re taking by investing in Britain. So the interest rates on our debt would rise.

    If we go slower, you take the risk of either significantly higher inflation, or significantly higher debt interest payments.

    If you change the cuts:taxation ratio, you seriously damage the private sector’s ability to generate an economic recovery, as past experience has always shown that lower taxes are a better stimulant for economic activity than higher public spending.

  • http://www.torybear.com Tory Bear

    got the line bang on Will.

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  • http://familiesagainstnationaldebt.wordpress.com Families Against National Debt

    There are always alternatives. Unfortunately, it doesn’t follow that your alternative is better. As with previous posts, you don’t appear to differentiate between the performance of the private sector under Government plans and your plan. Why not?

  • http://www.mendeley.com/profiles/stephen-henderson/ Stephen Henderson

    I note that Martin Wolf has offered a model based estimate that the cuts today will suppress GDP by between 1-2% a year (excluding QE- which he is unsure of in any case).

    So which is better: an extra 1-2% of GDP each year of this parliament or £4 billion?

    http://www.ft.com/cms/s/0/10dabd3a-dbba-11df-a1df-00144feabdc0.html

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  • Sam

    jdennis_99 is spot on.

    Yes there are alternatives but they aren’t necessarily better. The markets, the credit rating agencies, the IMF, 35 major business leaders, the EU are all in favour of the government’s deficit reduction plan; all of whom I trust to be more knowledgeable and less bias than yourself Mr Will Straw.
    Its been very much the Labour way to spend now and worry about the debt later but at some point the budget needs to be balanced and its more responsible to do that sooner rather than later when the debt has grown by another 100 billion and interest payments have shot up.

  • maxy

    I am disappointed that left leaning alternative voices have failed to articulate a credible argument to the Tory’s insistence that substantial deficit reduction is the only way that Britain can be brought back from the brink. The idea that Britain was on the brink is laughable just as it is widely inaccurate. Indeed it is because of the paucity of arguments from the left coupled with the failure to articulate in clear unequivocal and easily understood terms the contrary argument to cuts, that the Tory Party has been able to carry on with the cuts agenda. Are there no Left leaning economists out there who could articulate in a ten point plan as to why the deficit reduction plan is premised on shaky premises? I for one want to see some clear analysis on how the structural UK deficit is different from the debt that the Labour Govt. run up in baling out the banks. I am not sure many people understand this point.

  • maxy

    There is an alternative to substantial defecit reduction and the Left needs to get a move on in articulating this position in clear and simple termonology.

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  • maxy

    I have not seen anywhere concern expressed about the proposed increase in retirement age for women from 60 to 66 years in 2018. This means that women will have to work an extra six years to qualify for the pension. Am I the only one that thinks this change represents an unfair burden on women.

  • adrian

    women will have to work an extra six years? how do you work that out?

    women will have to work longer than they would have done under the present sexist regime. that’s all.

  • Judy Dickinson

    Sam – The markets, the credit rating agencies, the IMF, 35 major business leaders, the EU are all the groups that were disastrously wrong in 2007/2008 so can hardly be said to be less knowledgeable than Left leaning economists.

  • Mr. Sensible

    Will whilst I don’t agree necesarily with all the specific suggestions I agree with the main point of your argument.

    There is an alternative, and these cuts have no real electoral mandate.

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