Osborne's cuts take us back to the dark days of, umm, 2001

It's good to see that we're not the only people who have realised that Osborne's cuts are not about to plunge the nation back into the penury of the 1930s. We're actually going back to the dark old days of 2001:

Because the government does not want to raise taxes to fund these plans, public spending is forecast to fall from 41% of GDP today to just 35% by the end of the decade.

That has prompted accusations that the government wants the country to go back to the late-1930s—and the Britain Orwell describes in his cri de coeur against poverty. The Office of Budget Responsibility, Britain's fiscal watchdog, stated that Mr Osborne's plans would force public spending down "below the previous post-war lows reached in 1957-58 and 1999-00 to what would probably be its lowest level in 80 years". "You're back to the land of Road to Wigan Pier", one BBC journalist roared. The opposition Labour party also sensed good electioneering material; on December 17th, Ed Miliband accused the prime minister of wanting to send Britain "back to the 1930s".

Hmm, well, yes:

Stripping away the hyperbole about Mr Osborne's plans shows that in reality they only amount to a reduction to the levels of public spending seen in 2002-03 in real terms, or 2001-02 in real terms per capita. The government could, back then, clearly afford a welfare state, as it will be able to still do in 2020.

You might think this a tad cynical, in fact, so do we think it a tad cynical. But then we are cynical about politics. Blair and Brown were elected: they stuck to the previous Tory budget plans for their first couple of years. Then they let rip: raising public spending as a portion of GDP from the levels it had so painfully been managed down to. No, this isn't bank bailouts, nor is it just the result of the recession. It was a deliberate plan for what they thought would be a better Britain (obviously we disagree on that betterness). All that is being done now is a reversal of that Brown Terror and splurge. You might agree that this should happen, you might think that it should not, but those screaming that it's a return to the 30s well, here's the cynicism: we think they're the people that that extra money has been spent on these past 12 years. No one likes to see the gravy train shunting back into the yard one last time, do they?

Local government cuts needn't be the end of the world

Local governments are having their spending power cut by 1.8% in real terms next year. Local councils pay for things like social care, some education, public transport and roads, and some of the arts. So this cut is not so popular in some quarters.

I hate relying on ‘waste cutting’ as a way of making spending cuts, but local councils really do seem to waste a lot of money. Since 2010 they’ve made £10bn in efficiency savings, and a third of councils say they can make bigger savings. I’m sure at least some of the other two-thirds are just being shy. The Local Government Association estimates that local governments can continue making efficiency savings at between 1 and 2 percent per year. So that’s something.

The big spending items are social care and waste spending. Both of these can be reformed so that people who can afford to have to pay for themselves. Waste collection is often contracted out, and there is academic evidence that doing so results in significant cost reductions. (There’s an easy way for councils who do not already do this to save some cash.) But more significantly there’s no real reason that more of the actual payments for this should not be moved to private residents as well, at least those who can afford it. 

Social care is much trickier and, as the population gets older and lives for longer, paying for it is becoming a bigger and bigger problem. Those people who can afford to pay for their end-of-life care should do so, but there is the problem that this disincentivises saving. Nevertheless it is hard to see a case for people who live in social housing and earn low amounts of money paying for the end-of-life care of people who own the big houses that they live in. Reforming this wouldn’t solve problems in the short run, but it might help stave off a bigger funding problem in the medium run.

Normally everyone focuses in on arts funding. In my view, there is no role for government in arts funding at all. I won’t convince you of this here, but Pete Spence might. And there are all the weird little things that local governments spend their money on that could be cut to save even a tiny bit of money. Where I live, in Lambeth, half the adverts I see seem to be thinly-veiled political campaign posters (paid for by me and my neighbours).

And, funnily enough, there’s one way councils could raise quite a lot of money and solve another problem in the process. The country needs a lot more houses, and planning permission is the main thing standing in the way. In some parts of the country, a piece of agricultural land that gets planning permission rises in value by one hundred times. Councils should be allowed and encouraged to auction off development rights for new houses. That would raise money for them and help tackle the housing shortage.

The problem here is that housing demand is not equal across the country, and it’s the richer places like London and the south east that would benefit the most from this. So there’s probably a case for some minority fraction of the money raised being redistributed to poorer authorities. In general I like the principle of council funding redistribution from rich to poor parts of the country, but that does reduces the incentive for councils to improve the economic prospects of their own areas. Though perhaps they lack the powers to do this anyway.

We have a government deficit that most people want reduced, some very large areas of central government spending that most people want increased (pensions, healthcare), and a general consensus that economic growth is a good thing (so tax rises are out). Something’s gotta give and there is almost nothing that can be cut painlessly. But given some willingness to reform alongside cutting, local government cuts could be the right way to go.