Politics

The spending cuts George Osborne flatly refused to make

28 November 2015

9:00 AM

28 November 2015

9:00 AM

The Autumn Statement on 25 November had long been circled in Downing Street diaries as the season’s defining political moment. Its importance only grew after the Lords rejected the government’s tax-credit changes and George Osborne announced that he would present his revised proposals in this statement. But now it is not even seen as the defining political moment of this week, pushed down the news agenda by the terrorist threat in Europe and David Cameron’s decision to make the case to the Commons for Britain extending its anti-Islamic State bombing into Syria.

The extent of the security threat to Europe is becoming all too apparent. Not only have we seen more than 100 people gunned down in the French capital, we have seen another European capital essentially shut down by terrorists for several days. For obvious reasons, the question of how to deal with this threat is now what dominates politics.

The Tories have tried to make ‘security’ their watchword since before the general election. But the focus has now shifted from economic security to national security. This shift was under way even before Paris.

Jeremy Corbyn’s election as Labour leader, with his hard-leftist views on foreign policy and dovish position on terrorism, created a particular political opportunity. While his left-wing populism on the economy has some appeal, the electoral market for abolishing the army and calling Osama bin Laden’s death a tragedy is almost non-existent. Last month, one of the most political people in Downing Street summed up the Tory approach to Corbyn and Labour thus: ‘National security, that’s how we’ll disqualify them. We don’t even need to get to the economics.’

Corbyn’s problems with his own MPs have got so much worse because events have propelled national security to the top of the political agenda. Labour MPs know that his positions on these issues are electorally disastrous. In the Oldham by-election, Ukip aren’t savaging Labour for Corbyn’s views on the economy but for his argument that Mohammed Emwazi (‘Jihadi John’) shouldn’t have been taken out by a drone strike. This is proving so effective that Labour will now be relieved just to hold on to a seat that it won with a majority of more than 14,000 in May.


Yet the economy is still the key to the Tory effort to create a new coalition of voters that can keep them in power for a decade or more, and to Osborne’s own political prospects. That is why this Autumn Statement was still so important, politically.

At their autumn conference, the Tories tried to present themselves as the new workers’ party. Cameron talked about his commitment to social reform, to equality of opportunity, and promised an ‘all-out assault on poverty’. Yet the Tories have to achieve these things while cutting back the state.

Osborne’s decision to junk entirely the tax credit changes announced in the summer Budget shows just how hard it can be to combine these two objective. But those close to Osborne argue that this is possible, that even after this spending review the government is still spending several trillion pounds. They point out that even with the cuts announced on Wednesday, Osborne could still put another£7 billion into housing. The decision to spend more on house-building and the willingness to look again at planning rules is a reminder of how much this issue exercises Osborne. He believes falling levels of home ownership and spiralling house prices are one of the biggest obstacles to creating a new-centre-right majority in Britain. He is far less concerned than Cameron about the effect that major house-building will have on the landscape.

Another area where Osborne is determined to keep putting in extra resources is the health service. He believes it was Cameron’s NHS commitment that was the most important and electorally significant element of Tory modernisation. The tensions between 10 and 11 Downing Street and Jeremy Hunt in recent weeks have been borne out of frustration that, despite the cash that the Tories are pumping in, they are still regularly waking up to headlines about the NHS being in crisis.

This spending review was made harder by the fact that most of the obvious cuts were made last time round. But it was made easier by the absence of Liberal Democrats: Nick Clegg had no veto. Some ministers have also remained enthusiasts for reducing spending even though they now run departments. I understand that both the Business Secretary, Sajid Javid, and the Environment Secretary, Liz Truss, had some of their proposed cuts knocked back by the Treasury. Indeed, the extent to which Osborne has tried to protect elements of the government’s ‘industrial strategy’ from sweeping cuts to the Department for Business shows how much he has changed in office. His politics now owe more to Michael Heseltine than Nigel Lawson.

The spending review, as with everything in Tory politics these days, has become tangled up with the succession question. Some ministers grumble that those departments run by the Chancellor’s allies have had an easier time reaching agreement with the Treasury than others. But it would be more accurate to say that the Treasury has tended to reward those departments that have played the game; that put their cuts submission in on time and so on.

Osborne hasn’t, though, been above using a bit of peer pressure to push ministers into striking a deal. When the Public Expenditure Committee, also known as the Star Chamber, met last week, those secretaries of state whose departments had settled were allowed into the room first, while those who hadn’t were kept waiting outside. But those ministers who haggled with the Treasury until the last possible moment are unapologetic about having done so. One said of those ministers who did make a quick deal: ‘Let’s see if they still nodding in January.’

In the last parliament, Osborne slowed his deficit reduction plan and paid no political price because Labour wasn’t fiscally credible. Today’s Labour party, though, makes Ed Miliband and Ed Balls look like deficit hawks. For that reason, Osborne wouldn’t have paid a high political price if had reduced the 10 billion surplus he said he would deliver by the end of the parliament. But if there were not to be a surplus after ten years of a Tory in the Treasury, it would have shown that the Conservatives weren’t fiscal conservatives any more. His decision to stick with the £10 billion surplus is an attempt to reassert his and his party’s fiscal credentials.

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Show comments
  • Atlas

    Yet further evidence of Osborne’s commitment to the big state.

  • misomiso

    Speccie

    Even though you have the best political commentary in the business, even you can’t see the wood for the Trees.

    This is all about the referendum – Cameron and Osborne are desperate to not rock the boat or create any enemies or excessive political opposition before the referendum.

    Which means no radical reform, as for the Top Tories the EU mean more than anything.

    Their political strategy is to do nothing before the referendum, then offer the Right ANYTHING post referendum to hold the Tories together (grammar schools? ECHR reform?, it doesn’t matter, it will probably be watered down after the election anyway).

    Politically brilliant, morally bankrupt.

    • Chamber Pot

      The ‘heir to Blair’. Our idiotic electorate continue to be hoodwinked by Dave, this charlatan.

  • MrBishi

    The proposed Osborne austerity cuts have been reduced by 75% as a result of the OBR tax-take windfall.
    Does that mean that he realised that the original cuts were too severe or does he prefer spending to cutting?
    Politics at the moment is like going into shop and asking for an ice-cream and being given a bar of chocolate.

  • Richard Young

    ‘Not only have we seen more than a 100 people gunned down’.I am scathing of the cavalier attitude here.No Mr Forsyth not 100,think rather 450.That’s if you wish to include all levels of physical distress.Terrorists did not shut down Brussels as you claim.A hitherto dismissive uncaring Brussels elite did that.It seems waking up to find Brussels is over 40% muslim put them off their foi de gras.A bit more attention to detail from you would not go amiss.

  • John P Hughes

    James Forsyth writes:
    “I understand that both the Business Secretary, Sajid Javid, and the Environment Secretary, Liz Truss, had some of their proposed cuts knocked back by the Treasury. Indeed, the extent to which Osborne has tried to protect elements of the government’s ‘industrial strategy’ from sweeping cuts to the Department for Business shows how much he has changed in office. His politics now owe more to Michael Heseltine than Nigel Lawson.”

    This is interesting because it shows that there is public spending on activities that some Ministers think should not be taking place. Sajid Javid seems to be borrowing from the views of the late Nicholas Ridley who used to ask ‘What is the DTI for?’ and considered that ‘The Government giving industry money’ was not the way to run a free market economy. Giving industry money seems to be the same mindset now (but in the Chancellor’s mind this time) as when Ridley tried to cut it back. Dressing it up as ‘industrial strategy’ does not conceal what it is: handing out grants to business..

    Elizabeth Truss’s proposals for cuts in Defra spending are equally intriguing. Defra has had to increase spending on flood protection (the Somerset flooding crisis has had its effect and a repeat of it on the same scale this or next winter would be likely to end her time as Secretary of State). Defra payments for the administration of the National Parks and AONBs in England has been protected and may be increased slightly – this is the area of Defra responsibility where voters support public spending, and it is not a large sum compared to other departmental spending. So was her proposal a cut in farm subsidies paid through the CAP?
    James Forsyth ought to tell us.

    • smoke me a kipper

      But it’s ok to give banks money. Says a lot.

    • Frank

      DEFRA is about as well run as Zimbabwe’s health service!

    • Tom M

      Quite so John. I too felt a bit short changed when I didn’t get to hear what had been proposed and subsequently rejected.

  • mikewaller

    What he ought to have done was to whack a hefty duty on sugar. No only would it have yielded a very useful new income stream, it would also have helped contain the crippling burden diabetes and other obesity-related issues are imposing on the NHS and the country as a whole. Forget all the crap about “the Nanny State”, governments tolerate the erosion of our physical well-being by BIG FOOD AND DRINK for much the same reason they tolerate the massively disproportionate powers of the media proprietocracy: rank cowardice!

  • RS

    They should not be surprised about the headlines on health. Funding was only going to rise by £8bn over the parliament, of the order of 1.5% a year – barely tracking population growth let alone the rising elderly population or the cost of new ever more expensive treatments. The £20bn of efficiency savings are clearly illusory, just like the £27bn gain from reforecasting VAT receipts will prove to be. UK health spending is some way below the OECD average, and far below the levels in France or Germany.

    • John P Hughes

      Health spending comparisons are of all spending on health in a country, not public spending (or more specifically Government spending). It is the low level of the spending by private citizens on health that distorts the picture. In Germany, France, Australia and Canada there are statutorily-regulated insurance schemes and those who can pay contribute. The result is better health care and more efficiency.
      The insurance funds in those countries purchase the health care for the insured citizens, and the hospitals and clinics, which are independent, provide the service – and in many cases have to compete with other providers, so that charges are kept from rising too fast. The UK does not have this way of preventing costs escalating.
      In Germany the Churches are among the providers as they run hospitals and clinics in some regions.

      • RS

        Spending is spending. There is no evidence that any system other than the US is inefficient. In fact judging by the latest Commonwealth Fund reports the NHS is the most efficient model in terms of inputs against outputs. Our model is one of taxpayer funding, but that isn’t bringing in the same money as being spent in Europe, and unsurprisingly it can’t match their outcomes.

        • John P Hughes

          “Our model is one of taxpayer funding, but that isn’t bringing in the same money as being spent in Europe, and unsurprisingly it can’t match their outcomes.” Yes. That is what is wrong.
          The proportion of health spending that is by the State (public sector, tax-funded) relative to the proportion that comes from the citizens (private sector, from family incomes) is what makes the difference. Because there is insufficient citizen spending on health (as a percentage of the total) the health system in Britain is becoming unaffordable to the State. The French, German and Canadian regulated health insurance funds bring in sufficient citizens’ contributions to make the health systems in those countries work better. The health services are not major political issues in those countries.

    • Tom M

      You are correct when you say that France and Germany spend more on their health services but don’t be misled by thinking that equalising the comparatively small difference in expenditure would cure the many problems of the NHS and improve it to be on a par with of either of those countries.
      I have no personal knowledge of the German system but I can assure anybody that the French health care system is much more comprehensive in it’s facilities and services and better run than the NHS by a country mile.

      • RS

        They are not comparatively small. On QT last week some idiot on the panel tried to argue 2% of GDP was relatively small. The differences on health spending with the top tier in Europe are of the £10-20bn per year magnitude.

        • Tom M

          All in the same sentence you claim that 2% is a large number and £10bn is a small amount. Which one do you want to present your case? It might be a lot of money but in terms of the £100 plus billion it takes to run the NHS it is a small amount.
          If you take the spending of the NHS and that of the French health service since their creation you will find the graphs cross several times. So what might be the case now most certainly hasn’t always been.
          The NHS and the French system were created in the same month and year. Why has the French service always ouperformed the NHS?
          If people just knew what other countries in Europe provide they would be dumbstruck at the difference.
          In France in particular, the range of services, the professionalism and speed with which these are provided would leave any of those dyed-in-the-wool-state-run-health-service-at-all-costs gasping for air. It is not all about money.
          Looking at any of the previously British State run enterprises would tell anybody they all suffered from the same malaise. The NHS isn’t any different That isn’t to say State run can’t be done. But it is to say it can’t be done in Britain.

          • RS

            You misunderstand. The NHS budget is around £110bn. The gap between our spend and theirs is of the order £10-20bn which is a vast sum and we know the NHS performed much better before Osbourne began starving it. If you look at the various reports and comparisons, the outcomes of the NHS are not at all bad, though not world leading, which is all the more surprising given how badly funded it is. Norway which also has a big state, but far better funded model is right up with the best. I would be interested what reports you are looking at – for how long since WW2 has anyone been objectively measuring international healthcare services?

          • Tom M

            One thing you have to be aware of is the NHS and the French health service are providers of health care for their populations but comparisons stop there. They are very different organisations in terms of the scope of care they provide and how they do it.
            I could relate experiences first and second hand of the NHS (my family history) and the French system (since eleven years). The story would tell of some outstanding care by the NHS an awful lot of indifference and more than a few examples of sheer incompetence. The French service just works, from the GP and your carte vitale (why is it that the NHS can’t construct an IT system that works? ) through the various hospital consultants, radiologists, physiotherapists, ambulances (more like taxis) to take you to the hospital at a stated time and return you when you are finished at the hospital, dictrict nurses (a veritable army of them in Yellow Pages for you to choose from). Most of these people are self employed. Many of the hospitals are private (called clinics) but perform the same function as “hospitals”. The money for construction is private. They are run as a business and they hire and pay their staff. Their revenue comes from how many procedures they do. Each procedure is awarded points. The Government pays for points. The same for all hospitals and clinics. For a Socialist country like France it seems odd that there aren’t any demonstrations ever about no-profit-from-my-health-care. I’ve never even heard anybody complain about the health service here.
            The only thing better in the UK would be dentists and opticians. Sadly in short supply in France. Not unknown for UK citizens here to go back to the UK for specs (although I suspect that might also have a dimension of not speaking the language as well)
            The figures I quoted are from the Economist publication Britain in Figures. Having had another look at that surprisingly I see that France’s expenditure falls below the OECD average.
            I think it is a big mistake to assume that shoving more money into the NHS will solve it’s ills. I’m afraid they are deeper that that. I explained my point of view previously about nationalised industries in the UK. The NHS is a Nationalised Industry.

          • RS

            Politicians scope most ludicrous IT systems that fail. The companies that build them are the same few across the developed world.

            Your comment about ‘shoving more money into the NHS’ suggests that you subscribe to the fallacy that more NHS spending is throwing good money after bad. The NHS is cash starved by any developed world international standard and it should be no surprise that it seems to exist perpetually on the brink of some calamity.

            You haven’t linked any statistics – but I link the actual OECD figures below – as you quote OECD countries it makes sense.

            http://www.oecd.org/els/health-systems/health-statistics.htm

            You can see that France is spending 10.6% of GDP on health and we are spending 8.6% in the UK. 2% of our GDP is some £36bn a year, though not all the spending even in the UK is directly from the state. If you prefer per capita or PPP spending the figures are there and the answer is the same – France is right up the table on spending, UK is down close to the OECD average which is nothing to be proud of given the countries like Greece, Estonia etc… that reside in the bottom half of the OECD.

            The debate on management and structure will run forever and will keep lawyers and management consultants well. The truth from the OECD figures is that with the obvious exception of the US the various systems perform largely according to their inputs – see figure 6.3.1 below:

            http://www.healthpowerhouse.com/files/EHCI_2014/EHCI_2014_report.pdf

            The NHS is a mid-lower table system for funding, with mid-lower table performance.

          • Tom M

            I concur about the IT systems. That rather implies does it not that it is the customers who are to blame. The very same customers are the same people who run the NHS. If this is how they deal with a project like that do you really have any faith in their ability with other aspects of management?
            People continually quote NHS problems as only money but remember this. The figures quoted currently tell us that they are short of money and I don’t dispute that. But if you look at the expenditure since creation (the French service was created same time as the NHS) then it is less than obvious. But, the NHS has always lagged behind in service provison.
            The other point that is very clear is that both the French and NHS are national health care systems but the comparison ends there. The two systems are miles apart in what they do. It would be hard to see reducing the funding gap closing that.
            The NHS doesn’t even try to match the range of services provided by France. Even then those they do provide are not done equally well. French medical aquaintances of mine tell me they have a high respect for medical ability in the UK. I don’t dispute that either but a few specialist departments in a few hospitals writing in the Lancet isn’t the same as having whatever it is available all over the country 24/7.
            Believe me, you would have to experience both to appreciate what the differences are (my favourite of IT being only one).

          • RS

            I don’t see what expenditure since creation has to add? The French fund healthcare to the tune of 2% of GDP more than the UK. Yet many will have you believe the NHS is a bottomless moneypit into which we already put more money than most other countries. It is foolhardy to think such a chronically funded system will deliver the same oitputs as France, it can’t, won’t and doesn’t as I have highlighted. Debate about structures and management will go on forever, but in truth every structure except the US delivers high quality outputs in countries where it is well funded and the figures clearly demonstrate this. The NHS will not deliver world class outcomes until is funded above the current level of almost perpetual crisis management, and 2% of GDP is around £36bn a year…

          • Tom M

            You are still labouring under the illusion that the French system and the NHS are examples of the same thing. They most definitely are not.
            I cannot repeat it often enough that the NHS does a lot less than the French health service and even the part they do provide is done badly.
            This week alone I have seen nurses imprisoned for failing to take the regular blood tests of their patients in Bridgend. The CEO went to great lengths to tell us all that it was OK because no one suffered because of it.
            I saw a news article last night (where?) telling us that around 1400 deaths somewhere were unexplained and had not been investigated properly. But it’s OK because the CEO told us that improvements are under way.
            What do you have to do to get nurses to do their job properly? Is it acceptable a CEO should tell us a failing which resulted in prison sentences for his nurses isn’t all that bad if nobody was injured?
            Are you happy that a CEO tell us that they haven’t been suspicious of people dying unexpectedly?
            These are examples of criminal negligence that would not be tolerated elsewhere whatever the level of funding.
            I have worked professionally in industry all my working life and in many organisations some well funded some not. Nowhere have I ever seen any colleague ever act criminally because of a lack of money. No-one at any level in the company would be prepared to take the risk.

  • smoke me a kipper

    Keynes will always triumph over Hayek

  • Frank

    “Fiscal credentials” ? This Government is about as fiscally credible as I was when aged 16!

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