The debate on cuts

Mending Britain’s public finances will be the most important issue in the run up to the general election. In fact, it will be the most important issue for years to come. “Tough choices”, “difficult decisions”, however one phrases it the enormous public debt will have to be tackled.

We've heard plenty about cutting out 'unnecessary' spending, which always begs the question "why was money unnecessarily spent in the first place?" But now we are beginning to hear the parties and politicians set out the real steps – albeit tentative ones – which they think will best tackle the debt. We have heard Vince Cable’s take on how to cut spending (although the Lib Dems were non-committal to the plans), and the Tories have announced that they will raise the retirement age in order to save money. Last night Alistair Darling took the unusual and controversial step of announcing a policy – and a particularly high-profile one at that – during another party’s Conference. He has proposed to freeze the pay of 40,000 top public sector workers, and to limit increases to 1 per cent for 700,000 others. Political gaming aside, this is the right kind of idea; pity it is such a half measure, for it will not save remotely enough money to make a significant dent in the debt.

Last month the TPA, along with the Institute of Directors, set out a menu of cuts that would save £50bn. As well as setting out real proposals, a genuine achievement of the paper is that it stimulated debate on concrete ideas for cuts from others, and importantly from politicians. Before this, we heard lots of rhetoric with little substance. One of our key suggestions was an across-the-board public sector pay freeze for at least a year to help scale back the deficit. The only people exempt from our proposal were serving members of the armed forces; with the public wage bill constituting a quarter of Government spending, it is a painful but vital step. Mr Darling’s suggestion just does not go far enough.

The size of the problem necessitates immediate and signifanct cuts to public expenditure. No-one should pretend there are easy pickings, and no-one should pretend they are not going to hurt. Efficiency savings and longer-term reforms are both essential and welcome, but they must be combined with an impetus to reduce spending now. The UK's credit rating is on probabtion, and public services are literally working on borrowed time. As unpopular as it may be, a public sector pay freeze - as part of a wider strategy for tackling the deficit - is unavoidable. During the downturn private companies have had to make redundancies and cut wages. The next Government, which ever one it may be, will have to do the same with the workforce that the taxpayer pays for.

Update: Since posting, George Osborne has just announced a serious public sector pay freeze in 2011; only frontline soldiers and people on less than £18,000 a year will be exempt. The debate on cuts continues...

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