Public spending needs to be cut, but the politicians and the unions will decide how painful that process is

June 16, 2009 12:02 PM

When Standard & Poor's released a warning that they might need to downgrade Britain's debt - which would cost taxpayers a fortune in higher interest payments - as many institutional investors could then no longer buy Treasury debt, they made it clear how they would be deciding whether a downgrade would take place:



"The rating could be lowered if we conclude that, following the election, the next government's fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory over the medium term," S&P credit analyst David Beers said."


Basically, they are willing to give us the benefit of the doubt for now.  If we don't cut borrowing rapidly after the election, though, a downgrade is probably on the cards.  That means we can't hope that borrowing will eventually fall as the economy recovers and need to take action now.


Tax rises can't do the job.  Ordinary taxpayers are already labouring under a tax burden that has risen significantly over the last decade.  Further tax hikes will either cause serious hardship for the poor and middle classes or imperil Britain's competitiveness and mean more people out of work and less investment in Britain.  It is no accident that most commentators expect Labour's taxes on the rich to raise little or no revenue.  They are a political manoevre, not a serious attempt to restore the public finances to health.


That means spending cuts.  It is why both political parties are planning real terms cuts, though they aren't going nearly far enough.  The problem is that political parties are being slow to face up to the challenges of cutting spending.  The Government are lying and insisting that they have no plans for cuts at all.  Ed Balls is taking this to an absurd extreme and talking up potential increases in spending years down the line once the economy has recovered and the public finances are in better shape.


The Conservatives have acknowledged a need for cuts but they have only addressed specific areas of spending, health and international development, in order to announce that they are safe from spending cuts.  While we can't expect an opposition party to announce their first Budget, the Conservatives will need a mandate to force cuts through and that means giving the public something more to go on than an aspiration to reduce spending.


That mandate will be necessary because cutting public spending will mean public sector workers losing their jobs and facing tough pay settlement and possibly changes to their pension arrangements.  While it wasn't public sector staff who increased spending by unsustainable amounts, year after year, unfortunately they will have to pay a price for politicians' profligacy.  This will be resisted fiercely by the unions, which will impose a further burden on ordinary people who face interruptions in services.


The Chartered Institute of Personnel and Development have set out some pretty bleak predictions of the years to come, reported by the BBC:



"As many as 350,000 public sector jobs could be lost over the next five years, the Chartered Institute of Personnel and Development (CIPD) is warning.


Chief economist John Philpott says the recession will bring "a bloodbath in the public finances" which will force employers to slash their workforce.


This could lead to "guerrilla war" in the workplace, characterised by repeated strike action, he said."


While some strike action may be inevitable, and politicians will have to face down the unions, the conflict will be much larger than it needs to be if the unions think that they can win.  If politicians haven't really made the case for spending cuts, and obtained a strong mandate for a plan to cut spending at the election, then the unions will be more confident and the chances of a "guerilla war" in the public sector will be much greater.

When Standard & Poor's released a warning that they might need to downgrade Britain's debt - which would cost taxpayers a fortune in higher interest payments - as many institutional investors could then no longer buy Treasury debt, they made it clear how they would be deciding whether a downgrade would take place:



"The rating could be lowered if we conclude that, following the election, the next government's fiscal consolidation plans are unlikely to put the UK debt burden on a secure downward trajectory over the medium term," S&P credit analyst David Beers said."


Basically, they are willing to give us the benefit of the doubt for now.  If we don't cut borrowing rapidly after the election, though, a downgrade is probably on the cards.  That means we can't hope that borrowing will eventually fall as the economy recovers and need to take action now.


Tax rises can't do the job.  Ordinary taxpayers are already labouring under a tax burden that has risen significantly over the last decade.  Further tax hikes will either cause serious hardship for the poor and middle classes or imperil Britain's competitiveness and mean more people out of work and less investment in Britain.  It is no accident that most commentators expect Labour's taxes on the rich to raise little or no revenue.  They are a political manoevre, not a serious attempt to restore the public finances to health.


That means spending cuts.  It is why both political parties are planning real terms cuts, though they aren't going nearly far enough.  The problem is that political parties are being slow to face up to the challenges of cutting spending.  The Government are lying and insisting that they have no plans for cuts at all.  Ed Balls is taking this to an absurd extreme and talking up potential increases in spending years down the line once the economy has recovered and the public finances are in better shape.


The Conservatives have acknowledged a need for cuts but they have only addressed specific areas of spending, health and international development, in order to announce that they are safe from spending cuts.  While we can't expect an opposition party to announce their first Budget, the Conservatives will need a mandate to force cuts through and that means giving the public something more to go on than an aspiration to reduce spending.


That mandate will be necessary because cutting public spending will mean public sector workers losing their jobs and facing tough pay settlement and possibly changes to their pension arrangements.  While it wasn't public sector staff who increased spending by unsustainable amounts, year after year, unfortunately they will have to pay a price for politicians' profligacy.  This will be resisted fiercely by the unions, which will impose a further burden on ordinary people who face interruptions in services.


The Chartered Institute of Personnel and Development have set out some pretty bleak predictions of the years to come, reported by the BBC:



"As many as 350,000 public sector jobs could be lost over the next five years, the Chartered Institute of Personnel and Development (CIPD) is warning.


Chief economist John Philpott says the recession will bring "a bloodbath in the public finances" which will force employers to slash their workforce.


This could lead to "guerrilla war" in the workplace, characterised by repeated strike action, he said."


While some strike action may be inevitable, and politicians will have to face down the unions, the conflict will be much larger than it needs to be if the unions think that they can win.  If politicians haven't really made the case for spending cuts, and obtained a strong mandate for a plan to cut spending at the election, then the unions will be more confident and the chances of a "guerilla war" in the public sector will be much greater.

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