Will the government’s 25% spending cuts really happen?

Anthony Hilton, a man who has seen a few economic downturns close up, dismisses all the silly season panic about a double dip recession:

It is surely time for a reality check. There is good reason for August being called the silly season but these days it is the financial markets more than the media which lose their sense of proportion and their ability to make rational judgements. It is the month where the bosses go off to the beach leaving the number twos in charge normally with the morale-sapping final instruction not to screw things up. This makes the deputies even more nervous than they would otherwise be and increases by a significant factor the likelihood that they will indeed screw things up. Apply this to every dealing room across the City and you have the reason more financial crises occur in August than any other month – though thankfully not this time – as well as the reason for markets overreacting to every shred of supposedly new information.

The worry at present is the possibility of a double-dip recession. There is no more reason now to suppose there will be one than there was six months ago – less in fact given the progress already made this year. Such an event is possible but that does not make it likely because the lesson of past recessions and recoveries is that double dips are in fact quite rare. But this historical truth has not stopped the markets behaving as if it was a near certainty.

The other point is that given what it has had to suffer already it would not matter that much if the economy did have another flat quarter provided that was all that happened and it bounced back again swiftly thereafter. The growth rate over the next three or four years is what will determine standards of living in this country, not the growth rate over the next three or four months and given that recoveries almost never proceed at an even pace so would be quite normal for there to be bright patches and dull patches.

Slow, bumpy and grinding growth, then, a bit like my old car metaphor.

He’s not convinced about the government’s cuts either:

When it comes to spending cuts the markets are assuming the Government’s actions will match its words. But if they do it will be a first. It is one thing for the Chancellor to demand 25% cuts, it is quite another for the Whitehall machine actually to deliver them. The sensible approach is not to believe it until you see it and to take the parliamentary rhetoric with a pinch of salt.

There will of course be a squeeze of some sort but history shows that the only way to cut government spending successfully is for the state to withdraw totally from various activities. But this Government shows every indication of shying away from the confrontations which would follow such a course and instead it seems to be trying to maintain most of what the state does but to spend less on it. What earlier governments have found when they tried this is that it only ever works for a short time.

Contrast that with Jon Davis in Sunday’s Observer. He thinks civil servants are well up for delivering savings:

Many in the Civil Service are of the opinion that cuts of up to a third are practicable, and could even lead to better government.

I’m a wee bit sceptical about that. I have seen too many bullish senior executives declare that, ‘There is loads of fat in this organisation’ – to which the obvious riposte is, ‘Why haven’t you done anything about it then?’ Blustering hyperbole is easy in a boardroom slanging match or when making off-the-cuff comments to journalists. Identifying and getting rid of that fat is a lot more difficult.

From the lofty perspective of the Treasury it is easy to talk of thirty-three percent spending cuts. In the hinterland of government agencies, NHS trusts and local authorities, those savings will be a lot harder to find and, even if they could be identified, the skills to make cuts without everything else falling apart are absent from many of these organisations.

At the moment there is a calm-before-the-storm feeling. Everyone in the public sector seems to be waiting for the spending review on 20 October to see what’s in store for them. I wouldn’t expect too much though. The spending review will give more detail about how much each department has to cut but the specifics will still be left to local managers. That’s where the problems will start. It’s easy to put numbers on spreadsheets but a lot more difficult to deliver the savings that make those numbers real.

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4 Responses to Will the government’s 25% spending cuts really happen?

  1. Pingback: Will the government’s 25% spending cuts really happen? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Cian says:

    Hmm, I think I’d describe mr Hilton’s piece as a thoroughly conventional response to an unconventional crisis. Basically he’s assuming (or reading between the lines, his city friends are suggesting to him) that this is a normal crisis, only on a bigger scale. It isn’t, and therefore normal rules don’t apply.

  3. James Doran says:

    The double-dip risks aren’t only from actions within the national economy but also from without. And it needs to be stressed that the risks to the cuts agenda not only come from within (destabilising events like scandals swirling ’round senior coalition figures, etc) but also from without. There’s local elections next year, and that will be a testing time for one half of the Con-Dems…

  4. Cian says:

    To be fairer than he deserves, he’s right that long term is more important. However long term is pretty bleak. The structural problems that are mostly responsible for the crisis (the Euro, unbalanced trading structures, a ponzi style economy, weakening consumer demand, aging populations) don’t just remain unfixed, but seem to have got worse – while the conditions that sustained the bubble (cheap energy and cheap Chinese imports) were unsustainable and probably aren’t going away.

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