Taking dramatically opposing views on the subject are Xit2’s Mark Blackwell and Phoebus Software’s Paul Hunt. As Blackwell argues that the spending cuts will devastate the country, Hunt claims the Chancellor should have gone much, much further.
Mark Blackwell, managing director of Xit2
George Osborne claimed he had no choice but to wield his axe, because Britain had “run out of money” and was on the “brink of bankruptcy”.
Rubbish.
The country has never been anywhere close to bankruptcy. Emotive posturing like this is not a good foundation for the biggest economic mistake in this country for at least a century.
Imagine if RBS’ chief executive, Stephen Hester, was asked how the group was doing and he said it was close to bankruptcy. It would be a dumb thing to say, even if it was true. Market reaction would see the share price collapse followed quickly by a resignation.
The coalition’s talk of doom has already caused consumer confidence, as well as the housing market, to collapse. Unemployment is starting to rise again and shop sales are falling. A recent CBI survey showed factory orders fell at their sharpest pace for six months in October. The economy is slowing fast which means that this is no time to cut public spending.
Osborne says unemployment will fall as a result of his jobs cull; nobody should believe that. Unemployment will rise, just watch. He says the economy will recover quickly; it won’t. He is going to drive us back into recession.
This is a very real threat. The short-term outlook for the economy is suddenly starting to look wobbly.
The CML has said gross mortgage lending totalled only £12bn last month, the lowest September total since 2000. House-builders report that the autumn selling season has been quiet. The risk of a double-dip in house prices, which would deliver another jolt to consumer confidence, seems to be increasing.
And government borrowing last month was £16.2bn. That’s higher than expected and it carries with it a hint that the recovery has started to slow.
The Chancellor said that “it is a hard road, but it leads to a better future”.
That might be true for those with a trust fund and a couple of houses, but it most certainly will not be so for most ordinary working people.
Paul Hunt, managing director of Phoebus Software
The Chancellor has wimped out. The cuts, if we can call them that, should have been far deeper. They certainly weren’t worth £83bn – £42.2bn a year is more accurate.
The £83bn figure assumes we’re starting from a point of continuous growth in welfare payments. But not doing something you had planned to do in the future is not quite the same as a cut; these aren’t “cuts” as you or I understand them. They are a sleight of hand.
Even the £43bn George Osborne has managed to cut doesn’t mean all that much. Public spending will drop from 48% of GDP in 2009/10 to 41% of GDP in 2014/15.
Yet, 41% is still a very big number. It represents a lot of tax and businesses hate tax. Look at HSBC, Barclays and JP Morgan – they aren’t going to hang around to pay for this.
The state employs far too high a proportion of the population. The Chancellor needs to implement a dramatic reduction in the state’s share of the economy.
Public sector net borrowing rose again to £16.2bn in September, which is a record deficit for the month, while interest payments amounted to £2.3bn in September, up from £912m last year. We can’t afford to be so cautious.
Apart from its scale and lack of ambition, the Spending Review also raises the question of priorities. Why is foreign aid going to reach record levels, for instance?
It’s very nice and makes me feel very good to be British, but does it actually do anyone any good? It might be brazenly politically incorrect to say so, but Dambisa Moyo, author of “Dead Aid”, argues otherwise. She heads economic research and strategy for sub-Saharan Africa at Goldman Sachs, having previously worked for the World Bank. She knows what she’s talking about, even in the Chancellor doesn’t.
The £1bn tax hike on business also strikes me as misguided. In addition to cutting back on public sector employee numbers, the government also has to create a framework that encourages private sector growth.
Let’s not forget the Chancellor needs the private sector to take up the public sector slack in terms of jobs. Other than the preservation of spending on Crossrail, he didn’t really have any pro-growth policies.
