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George Osborne's spending review cuts 'not savage but imperative'
15 Oct 2010Warnings of savage reductions in the size of the state following next week's spending review are overblown, according to a report today, which described the cuts to be inflicted by Chancellor George Osborne as "a shower, not a hurricane".
Mr Osborne's plans to slash £83 billion from state spending by 2015/16 will do no more than return it to 2009 levels in real terms, argued economics expert Tim Morgan, of brokers Tullett Prebon.
In a pamphlet for the Centre for Policy Studies think-tank, Dr Morgan acknowledged that the spending cuts "will hurt" and jobs will be lost.
But he insisted the cuts envisaged by Mr Osborne are "both modest and essential" and need not make deep inroads into frontline services.
The alternative would be higher borrowing, which could drive interest rates up to dangerous levels; more printing of money, which would risk a surge in inflation in the long run; or higher taxes, which would damage competitiveness, he said.
Any cuts will be made to budgets which are unusually swollen after a decade of "irresponsible excess" under Labour, argued Dr Morgan.
Had state spending risen in line with inflation since 1999-2000's £343 billion, it would have reached £450 billion by 2009/10, he said. Instead, it ballooned by 53% in real terms to £669 billion.
Mr Osborne's proposed cuts are expected to rein in planned budget increases to leave the total state spending at £686 billion at 2010 values by 2015/16 - still higher than it was in 2009 - said Dr Morgan.
Increased outlay on interest payments and the political decision to protect spending on the NHS and international aid means that there will be less money to go around in other Whitehall departments.
But the report calculates that even in these areas, the real-terms fall by 2015/16 is only 7%, from £524 billion to £485 billion in 2010 values.
"This level of cuts is therefore neither excessive, nor 'savage'. But it is imperative," wrote Dr Morgan.
"Proponents and opponents alike have presented the coming spending cuts as draconian, or savage. But in reality the anticipated downpour turns out to be a shower, not a hurricane."
The real risk to the UK economy comes from the driving interest rates up by failing to tackle the deficit, argued Dr Morgan.
"Anyone flirting with rate-risking policies needs to be aware that monthly mortgage payments could rise to unaffordable levels, a process which would simultaneously open up a chasm of negative equity," he said.
"This process could reduce millions of people to penury. This is a real risk, and one that must be avoided.
"Though not painless, spending cuts, particularly if relatively gradual and if concentrated on over-administration, hold far fewer terrors than dicing with interest rates."
Reader views (10)
Oh Andrew - while you continue to keep fighting the class war of the 1980's i prefer to start with the hear and now. My comments are about the collective approach to making the country tick that it is undeniable the Conservatives and Libs have tried to do - all the Labour Party can do is take funds from Unite while it uses Charlie Wheelan as 'political officer' to squeeze narrow sectional interests out of Ed Milliband. The issue is one of the personalities Labour has to play with, Ed Balls , etc where the very ministers who have lead us to these awful cuts and frankly the unfunded spending commitments that Ed Balls etc signed upto to were nothing short of reckless - such actions from those who hold our nations future in their hands should carry penalties - to defraud ones country with unfunded spending pledges that one subsequently then says someone else is cutting - come of it Andrew - thats just pathetic...
- Christian, London, 15/10/2010 13:32
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Bleeding Heart Liberal, London, 15/10/2010 11:17,
write your list of specific suggestions to your MP, otherwise your opinion is just hot air.
- Anglo, Sussex UK, 15/10/2010 13:02
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Why has not someone suggested that the Banks take 25pct off their bonus pools and set up bursaries for University Students from lower income families?
- Tojo, Hythe Kent, 15/10/2010 12:29
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@Right now we cannot afford the army, navy or air force. WE cannot afford the State Pension. We cannot afford so many essential things.
We have got to do something about it.
I have done the sums. The results were terrifying.
- Anglo, Sussex, UK, 15/10/2010 09:58
Anglo, we could afford the armed forces and a lot more if wealthy individuals and companies paid the tax that they should instead of using every loophole in the book to avoid it!
- Bleeding Heart Liberal, London, 15/10/2010 11:17
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" Con Libs have tried and Labour - its lurched to the left so rapidly I doubt we will see them in government for a generation" Oh Cristian, are you seriously suggesting that Govrnments of the right, and center right have worked, had they done so we wouldn't be in the state we are now, our last Government was more right than the one we have been lumbered with at present.
- Andrew Smyth, London, 15/10/2010 11:04
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Wow - amazing. A report for a right-wing Thatcherite-originated think tank says that slashing spending is a good thing.
What next, 'Heat magazine in celebrity front-page shocker'?
- Mike, London, 15/10/2010 10:30
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Right now we cannot afford the army, navy or air force. WE cannot afford the State Pension. We cannot afford so many essential things.
We have got to do something about it.
I have done the sums. The results were terrifying.
- Anglo, Sussex, UK, 15/10/2010 09:58
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How typical, here we have someone who actually understands the economics of government setting out the facts. Our Labour PR machine here will of course scream about huge cuts etc not because its true but because its in their narrow sectional interest. It is that absence of a collective responsibility for the country as a going concern, and not Labours pusuit as a pig with its snout in the trough of power (anyone looking at the Balls duo or the Milliband dynasty must see the thirst for power at almost any price they can not conceal), that makes we very sceptical that Labour has any right to govern so much as a wealk stall. Running a country for your supporters and ignoring those who do not is not a recipe for an efficient wealth creating Nation. A Balance must be struck - Con Libs have tried and Labour - its lurched to the left so rapidly I doubt we will see them in government for a generation.
- Christian, London, 15/10/2010 09:04
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Can we call the cuts A CORRECTION
From 13 years of overspending
- john, london, 15/10/2010 08:51
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Is this man and his team up to the job I guess we will only find out in several years time. UP THE _ankers.
- Mike Melbourne, Bedford, 15/10/2010 08:47
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