Shadow Chancellor, George Osborne, has made a start in announcing some headline-grabbing public expenditure cuts, including a one-year freeze of many public sector salaries. But Shadow Chief Secretary, Philip Hammond, has apparently been charged with finding other cost savings.His priority should be delivering material cuts within a four-year time horizon, something that the raising of the pension age does not address.
The real risk is that a succession of failed gilt auctions to fund the staggering annual issuance requirement, perhaps accompanied – or even caused – by a downgrading of UK sovereign debt, pushes up borrowing costs substantially. Where should Hammond start? Instead of cherry-picking individual programmes, there is a strong case for imposing ongoing across-the-board real cuts averaging 3% per year – with a few exceptions.
Clearly, social security, with an expected £165 billion out-turn this year, is an obvious target. Reducing both individual payments or limiting eligibility are sensible starting-points. With an annual budget of over £100 billion, the NHS should not be exempt. Given its massive work-force, there must be potential for cost savings away from the front-line. Local Authority expenditure has seldom been properly controlled. Now is the time to clamp down on excessive local government expenditure, both in terms of job numbers and salaries.
Bearing down on some profligate Conservative-led local authorities would be a useful start - along with adopting Wandsworth Council as the Tory template. Furthermore, finding large savings within the MOD’s notorious procurement division should not be difficult, especially from the aircraft purchasing programme. In terms of capital expenditure savings, scrapping Crossrail would be a sensible decision. Given its vast cost, is there really a compelling case for Crossrail at a time of acute financial stringency?
If Philip Hammond adopted these policies, the Treasury numbers would stack up nicely and the PSBR would plummet. But how strong is the political will?
