The government announced yesterday that local government funding will be reduced by 2.9 percent next year. That might not look much but, coming after four years of spending cuts, even 2.9 percent can be hard to find. It’s probably not enough to make any council collapse, though. At least, not yet. Most of the dire warnings from local government leaders are about what will happen after 2015.
Though this settlement will take us up to the next election, it’s not the end of the story. The chancellor has shunted a lot of his planned spending cuts into the next parliament. Whatever else you might think about George Osborne, he’s not stupid. The last thing you want in the run up to an election is the failure of a high-profile council. No, the time for major service collapse is just after an election when you’ve got five years left to do something about it or, at least, to spin the story so that someone else gets the blame. So it’s after 2015 that the next round of cuts will really kick in.
Few people believe that the chancellor’s public service cuts are achievable without the disappearance of many public services. If you cut public service spending to 16 percent of GDP, and health, education, elderly care and defence take up around 13 percent, everything else is pretty much stuffed. (See previous post for more on this.)
Whoever wins the next election will face a dilemma. By 2015, the strategies for coping with spending cuts will have reached their limits. You can only do so much with efficiency savings and local authority reserves will be exhausted by 2018. There will be a lot of bluster about hitting scroungers and reducing the welfare budget but none of the measures announced will actually save very much.
There’s an old saying used when pricing jobs. ‘You can have it good, fast or cheap. Pick two.’ A similar dilemma faces the next government. Maintaining public services at their already diminished 2015 level, avoiding major tax hikes and reducing the deficit are incompatible aims. Something will have to give. The IFS calculates that to avoid any further spending cuts after 2015 will require a tax increase of £25 billion. Reducing public service spending to 16 percent of GDP, which is the implication of government’s current stated plans, will lead to the complete collapse of some public services. Extending the deficit reduction timetable will be mean higher public debt and more money going on debt repayments.
Here, then, for the benefit of whoever wins the next election, is a diagram to show the extent of the problem. The next government could do two of these things but it won’t be able to do all three. I suspect what will happen, whoever is in power after 2015, is that all three of these will slip. There will be more public service cuts, the deficit reduction timetable will be pushed out and there will be more tax increases. The difference between the parties will simply be about the balance between these options. More cuts from the Tories, more tax rises from Labour. Right now, though, nobody is being honest about any of this. Politicians are kidding us that someone else, such as welfare claimants, lazy public servants or the rich, will bear the brunt of austerity. The debate, such as it is, is taking place in La La Land.
The 2015 spending dilemma