Today, George Osborne did one of those verbal tricks where you say that your opponents fall into one of a number of categories, then you shoot down each of those positions, thus showing that all your opponents are stupid:
There seem to be two types of opponent to the Budget.
There are those who deny that any action was necessary.
That we could wait years even before setting out plans to reduce the deficit.
This group of critics would put themselves at odds with an international consensus which understands that the sovereign debt crisis is every bit as dangerous as the financial crisis of 2008, if not more so.
Just because government bailouts helped to calm the markets for now does not mean that the risks have gone away – they have simply been transferred from banks to governments.
Economic stability now depends on a credible plan to restore the public finances to a sustainable path.
To fail to do that would mean higher market interest rates and higher debt interest payments – hardly a foundation for growth.
There is a second group of people who opposed the Budget.
It is those who accept in principle that we must reduce the deficit, but then in practice oppose every cut that is suggested to achieve it.
There is, of course, a third category of opponent; those who accept that cuts are needed, and some who even accept that cuts on the scale the government is proposing are needed, but who think that it’s exceedingly risky to cut so deep so soon.
The Observer’s William Keegan, who I have always thought looks as though he should be wearing a black Stetson and packing two single action Colts, presents some sound arguments for delaying the spending cuts. The best time to cut public spending, he argues, is during a boom, not during a slump. Given that we only started borrowing large sums after the financial crisis and we were starting from a level of debt lower than most other developed economies, we do have a little time to play with. The average length of time before the UK’s debt has to be refinanced is 14 years, compared with nine for Germany and the USA.
The economic arguments for delaying the spending cuts are powerful but so are the management ones. It’s much easier and cheaper to cut costs and restructure when the economy is buoyant. Downsizing an organisation during a boom is a far less onerous task than it is during a slump. People are more willing to take voluntary redundancy, trade unions don’t kick up because they know a lot of people are only too happy to take the money and run. Often the shop stewards are angling for payoffs themselves, which helps to ease the process. During a boom, you often don’t have to make people redundant at all. Turnover goes up and you can lose some people as they simply move on and look for other jobs.
The public sector has a something of a counter-cyclical advantage. In general, demand for its services rises during a recession so, as the economy improves, there is less pressure on resources and it becomes easier to reduce headcount.
The other advantage of downsizing during a boom is that there is more money available to invest. To reduce public spending significantly, the public sector will need to be restructured and its culture and ways of working radically changed. This will be a mammoth task. To do it properly, investment will be needed which may not pay back for several years.
The problem is, as anyone who has tried to change an organisation knows, a boom might be the best time to restructure but there is no imperative to change when times are good. Why do anything differently when the money is rolling in?
The public sector is no different. The mid-2000s would have been the ideal time to completely re-configure the public sector. Sure, the Labour government made noises about efficiency and reform but very little happened. The public sector continued to get its annual real-terms increases and it carried on pretty much as before.
So wouldn’t it do that again if the economy improved? If we waited until the recovery was well under way would there be less of a sense of urgency?
Not this time. Even if we take the most optimistic predictions, the economy will not get back to pre-recession levels until 2014. By that time debt repayments will be running at £67bn per year. Even if our tax base was restored to 2007 levels there would not be enough revenue to return to 2007 public service levels. Other challenges are ahead too; demographics, unfunded pensions and PFI repayments to name a few. Even when our economy has improved, reforming the public sector will still be necessary if we are to live within our means, or at least, within the amout we are prepared to pay in tax, over the next few decades.
The knee jerk stop-the-cuts mob are living in cloud cuckoo land if they think that the public sector can carry on as it is. In the near future there will have to be radical reform of the way we deliver public services. Whether that needs to be done right now, though, is questionable. Taking a large amount of money out of the economy so quickly, and before the economic recovery has gained momentum, is risky and almost certainly unnecessary.