Dominic Lawson: The public spending 'massacre' is a lie

Why should it be seen as 'anti-growth' to divert money from the civil servant to the shopkeeper?

It is one of the conceits of British politics in the post-Thatcher era that the political parties pretend there is an unbridgeable gulf between each other, when in fact only a hop would be required to cross the divide.

Thus the Labour Party castigates the Conservatives' proposed public expenditure cuts as "extreme" and "ideological", while in reality the main difference is not one of principle, but presentation. In his Comprehensive Spending Review last autumn, the Chancellor, George Osborne, pledged to cut £16bn from the deficit in the coming financial year. The Labour opposition, in so far as they have been prepared to offer a suggestion, seem to be sticking to the plan set out by the former Chancellor Alistair Darling, to cut £14bn. Over the course of the parliament, it is true, the Tories plan to move at a significantly quicker pace to eliminate the structural deficit in its entirety; but if Labour were in government they would be facing exactly the same sort of outrage from public sector trade unions and students that is now being directed at the Conservative-Liberal Democrat coalition.

Of course, it is the privilege of opposition to attack the necessary measures that it would itself be making if in government; one can even agree that in a situation in which there is only one opposition party, it has a duty to be as vehemently contrary as possible. Whether such a strategy convinces the public of the opposition's plausibility is quite another matter. For all Ed Balls's efforts to persuade us that Britain's fiscal black hole is purely a function of the improvidence of bankers, rather than that of his former capo di tutti capi Gordon Brown, the opinion polls suggest that the public hold even the hated bankers of the City of London and Wall Street to be less responsible than the Labour administration.

A weekend Ipsos MORI survey showed not just that twice as many people blame the current programme of cuts on the last government rather than on those actually wielding the secateurs: even when the global economy and the banks were brought into the question, more people blamed Gordon Brown and colleagues than awarded prime fault to the banks whose comprehensive bail-out was funded by the taxpayer.

As a matter of fact, this goes to show that the public have been paying attention. The official Treasury figures indicate that the final short-term cost of the so-called "financial sector interventions" will be £6bn – a figure completely dwarfed by a net public sector debt forecast (absent any cuts) to be £1.4 trillion by 2014-2015. In practice, moreover, it is likely that the taxpayers' stake in the bailed-out banks will be sold at a profit.

So when it is said that those working within the public sector, and those receiving its services, are being made to pay for a financial mess which is none of their fault, this is both true and false. It is true that those individuals working in the public sector have absolutely no responsibility for the mismanagement of the nation's finances by the previous government; but it is completely false to suggest that the unsustainable expansion of the state sector is anything other than central to the mess we're now in.

By way of illustration: government spending totalled £343bn in 1999-2000, which, if it had just kept pace with inflation, would have reached £438bn by 2009-2010. In reality, spending in that year reached £669bn, an increase, in real terms, of 53 per cent, over a 10- year period in which GDP had grown by less than 17 per cent. When you factor in how much of that GDP increase was the result of unprecedented levels of private debt then the truly unsustainable nature of the public spending becomes vividly apparent.

This also puts Osborne's spending plans in their historic perspective. As Dr Tim Morgan points out in his incisive Centre for Policy Studies pamphlet, Five Fiscal Fallacies, "No one should imagine that the Coalition's plans amount to a major reversal of past spending increases. By 2015-16, and expressed at 2009-2010 values, public spending (of £647bn) will remain higher than in 2008-2009 (£640 bn), let alone 1999-2000 (£438bn). In turning the spending clock back to 2008-2009, government will be reducing real-terms expenditure by £22bn, a small fraction of the previous escalation." This should be borne in mind when the public sector trade union leaders talk of a "massacre" of public services and of the "abolition" of the welfare state – and also when the bloated panjandrums of the defence establishment use similarly apocalyptic terms: on the Treasury's own figures, welfare spending will be 34 per cent higher, in real terms, in 2014-15 than it was in 1999-2000, and defence spending will be 36 per cent higher.

As Dr Morgan also points out, when government departments have become accustomed to year-on year real-terms budget increases of about 4 per cent, prudence can be mistaken for butchery, and the sort of efficiencies which the private sector has long regarded as normal are seen as justification for strike action. After all, whatever their disagreements on the appropriate policies to deal with the deficit, one thing on which all economists concur is that increasing productivity is the key to a growing, healthy economy. Given that the private sector is now much more productive than the public sector, a rational growth strategy must involve a switch of resources from the latter to the former. It is also a statement of the obvious that a cut in public expenditure, or in the public debt, is equivalent to a cut in taxes. Why should it be seen as "anti-growth" to divert that money from the civil servant to the shopkeeper?

I realise that the view exists on the left that we are an under-taxed nation, but the facts suggest otherwise. The World Economic Forum's 2011 Global Competitiveness Report ranked the UK 95th out of 135 nations on the "extent and effect of taxation" – by which it measures the beneficial impact of a country's tax system on incentives to invest. George Osborne has little flexibility to reduce taxes in the Budget, but in the light of such a damning report he must surely find some way to lower the regulatory burden on our businesses – David Cameron's recent strictures against "the enemies of enterprise" presumably reflect the Coalition's frustration at being thwarted in this agenda.

This Whitehall war will not be what draws the public's attention. The man in the Ford Focus will most want to know what happens to the duty on his fuel, the single most contentious tax at times of rising crude oil prices. The Chancellor's people have comprehensively leaked that the fuel duty rise due in April will be revoked. Ed Balls, who has been arguing for such relief, will claim the Government has listened to him – even though the increase was set in train by the last administration, of which he was such an influential member. As noted above, it's governments who tax and oppositions who say it's a crying shame, regardless of which party happens to be which at any one time. The merry-go-round of politics will never disappoint the cynics.

d.lawson@independent.co.uk