I still haven't found time to properly review the Chancellor's proposals, but I wasn't too surprised: it was a start, but not an especially bold one. Returning us to 2008 levels of spending is not going to help very much.
I have taken a little time before commenting on yesterday’s statement by the Chancellor. It is all too easy to become fixated on one aspect or another of his plan to get us out of the ruinous situation created by Tony Blair, Gordon Brown and their friends.
The first thing to understand is that “we could not go on like that”. We have a structural annual deficit of over £100 billion. That is, even if the economy was in good shape, with low unemployment, we would be piling up another £100 billion a year of debt.
Our debts are already costing us £43 billion a year. That no more benefits us as a nation than the interest on credit cards benefits an indebted individual. The Labour government which piled up these debts had no realistic plan to deal with either the deficit or the debts that they had run up.
Yet despite all the fulminations about “savage cuts”, the Chancellor will not reduce public spending, either this year, or in the future. He will spend £651 billion next year, then £655 billion, £679 billion and £693 billion in 2014/15. Even in the Labour Party, someone must see that those numbers are rising, not falling. Of course, they are not adjusted for inflation, but right now there is not much of that.
I expressed my dissatisfaction in the comments:
I wish Osborne had gone further, of course, and without affecting prisons and defence. With the relentless coalition-bashing from the BBC, it's very difficult to know what the public really think. I wish it could be put to a referendum, though I'm not sure how you'd phrase it ... "Should the government live within our means?" ... "Pain for you, or pain for your grandchildren?" ... "Cuts or tax rises?". More seriously, the government could ask which year we'd like to roll spending back to. I doubt many people would be foolish enough to say 2009, but it would be interesting to see.I've previously written about the impact various rollbacks would have on the deficit and taxation, and what it would take to bring government down to the size recommended by the Rahn Curve (15-25% of GDP)."Of course, they are not adjusted for inflation, but right now there is not much of that."Not much by historical standards, perhaps, but already on the rise.
According to the ONS, CPI was 3.6%, while RPI & RPIX are 4.6%.
As soon as the banks start lending again, the impact of the QE programmes will be fully felt. I expect massive inflation over the coming years, in line with the massive expansion of the monetary base.
This is good news in terms of making Osborne's cuts real, but it's bad news on every other criteria. Stealthily, inflation will cause far greater misery than the headline 'cuts'.