Tuesday, 6 July 2010

Cuts are easy; just roll back the clock

Back in May, I wrote:
Simply scaling back to the 'austerity' of 2002 would save hundreds of billions of pounds, and even accounting for increases in welfare costs, it would be enough to take us from deficit to surplus, allowing us to finally begin repaying the debt.
Today I read a couple of blog posts driving home this point. The first was from Daniel Hannan:
Suppose we set ourselves the modest goal of returning expenditure to the level it was at prior to the 2005 general election. The overspend would be eliminated at a stroke. Yet, as I remember it, the country was getting by comfortably enough in 2005. Indeed, plenty of us were arguing, even back then, that the government payroll was too large. Would a return to the spending levels of five years ago really plunge the country into Dickensian poverty? Does anyone apart from Polly Toynbee and the BBC truly think so?
Hannan reproduced a graph from Burning Our Money:

The BOM article is also well worth reading:
As we can see, over the next 5 years George intends to squeeze total public spending by 4%, or about £25bn pa.

Hardly a disaster, and to put it another way, that will take spending all the way back to the level last seen in... wow... 2008-09.

And compared to when Labour came to power in 1997, real spending will still be over 50% higher. Most of Labour's insane spending splurge will remain in place.

Yes, OK, we know that some departments will be squeezed more than others. But without working through all the numbers in detail, I'd be amazed if any department was going to end up with less in real terms than they had when Labour came to power. And as has been pointed out, the world seemed to be working perfectly fine in 1997.

You might want to keep these figures handy for the next BBC axe horror story.
Of course, even if our national finances weren't in such a terrible state, it would still make sense to impose public sector cuts much deeper than Osborne is proposing. Another recent article from Daniel Hannan considered the ideal size of the state:
The Rahn Curve is to state spending what the Laffer Curve is to taxation. Drawing on a mass of published data and economic models, it suggests that the ideal size of the state is between 15 and 25 per cent of GDP. Less than this and property rights start to look insecure; more and competitiveness suffers.
The state currently accounts for a shocking 50% of GDP, but to get it down to 25%, all we'd have to do is roll spending back to 1980 levels. I'd say we should go further.

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