Spinning on tax and spend

There's a lot of spinning going on around the new Compromise Government's tax and spending plans.  Much has been made of the government finding £6bn of spending cuts and spelling these out.  Yet this £6bn figure is in addition to a reduction in discretionary government spending of over £20bn already planned by Labour in the Budget and Pre Budget Report (in fact, in effect in the figures for a year).  Given that the 2009/10 deficit was in December predicted to be £177bn but turned out to be £163bn (ie a £14bn improvement), the £6bn figure is not that substantial when compared to total government spending.  Moreover, Business Secretary Vince Cable has stated that not all of that £6bn will be used to reduce the deficit this year but will be spent elsewhere, which sounds a bit 'Yes Minister'.

 

There are two approaches being taken by the new government which contradict to some extent.  One strategy is to prepare the public for spending cuts and tax rises by highlighting how serious the fiscal situation is (including highlighting additional burdens on the taxpayer eg pensions) and comparing it to Greece and other peripheral EU countries (also claiming to find extra Labour spending commitments, all but one unspecified as yet).  The second strategy is to announce the detail of some spending cuts now to demonstrate to the world that the UK government is serious about tackling public debt (you don't need the 'extra' £6bn of cuts to do this of course).

 

The problem is that the first strategy raises fears while the second is trying to allay them, so the new Chancellor had better be sure he knows what he is doing.


Stephen Beer, 17/05/2010

 
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