As we approach the autumn spending review, there is increasing media speculation about the level of savings to be made and where they will occur. Whoever formed the government in May 2010 would have had to reduce public spending. Labour were planning cuts of twenty per cent. It is just that they never told us where these savings would be made. What they might see as wisdom would better be described as cynicism.
Total government debt was £927 billion at the end of June with a projected deficit of £150 billion in this year alone so something had to be done. The borrowing and spending had not prevented economic contraction. Instead we had seen six consecutive quarters of the economy shrinking. This was a new record forBritain.
It is not all doom and gloom. In the second quarter of 2010, we had GDP (Gross Domestic Product) growth of 1.1 per cent, which was the largest increase in four years. There are also signs of a fall in unemployment and inflation. It is early days in our efforts to deliver a sustainable economic recovery but progress is being made.
Savings efforts are not set at the same level across the board. The Department of Health has its budget ring-fenced while others such as the Department of Education are classed as areas of priority spending. On the government income side, although VAT is due to be increased, there will be no change to items that are zero-rated.
The last Labour government did initiate a lot of spending projects that were unfunded and many of these are not being carried forward. This makes perfect sense as they were just eye-catching promises with no resources to back them up. Undeliverable commitments are absolutely pointless and damaging to faith in our democratic process.
The new OBR (Office of Budget Responsibility) has a key role to play in the economic recovery. Some observers have pointed out that there are dangers in overdoing the savings agenda in terms of stifling spending and economic growth. There is a risk here that should be acknowledged and careful economic tracking by the OBR can help mitigate it.
As economic growth improves, this will contribute to a natural reduction in the national deficit and debt. It is important for the government to be flexible enough to detect this and review savings proposals and where appropriate rescind them so as to keep the recovery on track. Tough but fair measures are needed but we should look for opportunities to draw back from them as well.
Councillor Bob Lanzer, Leader of Crawley Borough Council
11th August 2010