Exclusive: Leaked government data concerning next five years shows hidden costs of austerity drive

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Larry Elliott
The Guardian News Wed 30 Jun 2010 01:33 BST

George Osborne’s austerity budget will result in the loss of up to 1.3m jobs across the economy over the next five years according to a private Treasury assessment of the planned spending cuts, the Guardian has learned.
Unpublished estimates of the impact of the biggest squeeze on public spending since the second world war show that the government is expecting between 500,000 and 600,000 jobs to go in the public sector and between 600,000 and 700,000 to disappear in the private sector by 2015.
The chancellor gave no hint last week about the likely effect of his emergency measures on the labour market, although he would have had access to the forecasts traditionally prepared for ministers and senior civil servants in the days leading up to a budget or pre-budget report.
A slide from the final version of a presentation for last week’s budget, seen by the Guardian, says: “100-120,000 public sector jobs and 120-140,000 private sector jobs assumed to be lost per annum for five years through cuts.”
The job losses in the public sector will result from the 25% inflation-adjusted reduction in Whitehall spending over the next five years, while the private sector will be effected both through the loss of government contracts and from the knock-on impact of lower public spending.
The Treasury is assuming that growth in the private sector will create 2.5m jobs in the next five years to compensate for the spending squeeze. Osborne said in last week’s speech that tackling Britain’s record peacetime budget deficit would help keep interest rates low and boost job creation. “Some have suggested that there is a choice between dealing with our debts and going for growth. That is a false choice.” However, investors are increasingly nervous about the lack of growth in the world economy. The FTSE 100 fell more than 3% yesterday as fresh jitters hit confidence.
The opposition and trade unions said the unpublished Treasury forecasts backed up their argument that the unprecedented scale of the cuts in public spending would hamper Britain’s recovery from the deepest and longest recession since the Great Depression.
Alistair Darling, the shadow chancellor, said: “Far from being open and honest, as George Osborne put it, he failed to tell the country there would be very substantial job losses as a result of his budget.
“The Tories did not have to take these measures. They chose to take them. They are not only a real risk to the recovery, but hundreds of thousands of people will pay the price for the poor judgment of the Conservatives, fully supported by the Liberal Democrats. It shows the risks they are prepared to take. If they get it wrong, those people losing their jobs will not get back to work.”
Osborne said last week that his newly appointed panel of outside experts – the Office for Budget Responsibility – believed the jobless rate would soon start to improve. “The unemployment rate is forecast by the Office for Budget Responsibility to peak this year at 8.1% and then fall for each of the next four years, to reach 6.1% in 2015,” he said. This forecast was fleshed out in the Treasury’s Red Book, which says: “The decline in employment appears to be coming to an end and we expect a modest recovery in employment in the second half of 2010.”
From next year, officials believe that stronger growth and a rising working population will lead to an acceleration in jobs growth. Over the five-year period from 2010 to 2015, the Treasury assumes that employment will rise from 28.8m this year to 30.1m in 2015, despite the loss of jobs caused by spending cuts.
The TUC general secretary, Brendan Barber, said: “With Treasury figures revealing that spending cuts will hit private sector jobs harder than those in the public sector, it is absurd to think that the private sector will create 2.5m new jobs over the next five years.”
“This is not so much wishful thinking as a complete refusal to engage with reality. Much more likely are dole queues comparable to the 1980s, a new deep north-south divide and widespread poverty as the budget’s benefit cuts start to bite. Many will find that a frightening prospect.”John Philpott, chief economist at the Chartered Institute for Personnel and Development, said: “There is not a hope in hell’s chance of this happening [the creation of 2.5m new jobs]. There would have to be extraordinarily strong private sector employment growth in a … much less conducive economic environment than it was during the boom.”
The CIPD has estimated that there will be 725,000 jobs lost in the public sector alone by 2015, although Philpott said the number could be lower if the government succeeded in pushing through pay cuts.
He added that Osborne was expecting a similar rise in employment over the next five years to that seen during 13 years of the last Labour government, when around a third of the employment growth came from the public sector. “This is a slower growth environment and there will be no contribution from the public sector.”
Last night David Miliband, one of the candidates for the Labour leadership, said: “This proves what we feared but the government kept secret. The budget will slash jobs not create them, and the least well-off will pay the highest price.”
Andy Burnham, another of the Labour leadership candidates, said: ” The human cost of Osborne’s budget is now clear, despite his best efforts to hide it.”

Does the budget hurt the rich more than the poor?

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Author: Alice Tarleton|Posted: 5:34 pm on 23/06/10
Category: Coalition, Fiction, George Osborne, Public spending
The claim
“Overall, everyone will pay something, but the people at the bottom of the income scale will pay proportionally less than the people at the top. It is a progressive budget.”
Chancellor George Osborne, budget speech, 22 June 2010

The background
Yesterday slasher-in-chief George Osborne set out an austerity budget of spending pain. He sweetened the pill – slightly – by saying it was a “progressive budget” – i.e. the cuts and tax rises would hurt the rich more than the poor.

The chancellor even published charts breaking down the impact of the austerity measures – not something that happened in Labour-era budgets. We discussed these briefly yesterday. As we noted, the charts only go up to 2012-13 – before more than half of the government’s planned welfare cuts had kicked in.

They also include the effects of reforms Labour had pencilled in at earlier budgets, such as an increase in national insurance rates.

So if we look at yesterday’s budget alone, is Osborne still right to claim the poor would be spared the worst of the pain?

The analysis
The Institute for Fiscal Studies has filled in the missing pieces. Their breakdown makes the coalition look less like Robin Hood and more like Marie Antoinette.

Firstly, they distinguish between Labour’s reforms, and those announced yesterday (see the graph on p14).

Labour had planned to squeeze by far the most money from the richest, and the least from the poorest. But the coalition’s measures have the opposite effect – taking most (as a percentage of income) from the poorest and the least from the richest. That’s regressive, rather than progressive.

Unlike the Treasury, the IFS also looked ahead to 2014-15 (p 15). In this year things get worse, not better, for the poorest.

There is one thing worth noting – the IFS reckons one of the more controversial measures, the VAT rise, is progressive, depending on how you measure it. But the overall picture is less generous to the coalition.

This analysis focuses on tax and benefit changes. It doesn’t include the impact of another source of budget bad news: public spending cuts.

There is undoubtedly more pain to come on this front. Unless welfare spending is cut more deeply public services (apart from the protected areas of the NHS and overseas aid) face 25 per cent cuts over the next parliament. Unsurprisingly the poor benefit more than the rich from things like free education and healthcare, leaving them potentially more vulnerable to cuts – although we await autumn’s spending review for more detail on how the axe will fall.

We asked the Treasury whether they recognised the IFS’s figures, and will update this if we get a response.

The conclusion
George Osborne may have vaunted the progressive credentials of his budget in the Commons yesterday. But independent analysis shows he owes much of that to the past government.

The new measures announced in the coalition’s budget will, according to the Institute for Fiscal Studies, hurt the poor more than the rich.

– Related FactCheck: Budget 2010

Budget will hit poor harder than rich, according to IFS report

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A Thinktank challenges claim of ‘tough but fair’ measures and predicts poorer families will suffer in second half of parliament

Britain’s leading experts on tax and spending have strongly challenged George Osborne’s claims to have delivered a “tough but fair” budget, concluding that the measures in the emergency package would hit the poor harder than the rich.
The Institute for Fiscal Studies said the chancellor and Nick Clegg could only assert that the better off were the big losers from the austerity move by including reforms announced by Labour, such as the changes to pension contributions.
The thinktank gave its view as David Cameron came under Commons pressure to justify the insistence that the budget was fair, and as Osborne admitted he was looking for extra welfare savings to spare Whitehall departments, other than health and international development, from cuts averaging 25% during this parliament.
Noting that Britain was facing the “longest, deepest, sustained cuts in public spending since the second world war, Robert Chote, the IFS director, said: “Osborne and Clegg have been keen to describe yesterday’s measures as progressive in the sense that the rich will feel more pain than the poor. That is a debatable claim. The budget looks less progressive – indeed somewhat regressive – when you take out the effect of measures that were inherited from the previous government, when you look further into the future than 2012-13, and when you include some other measures that the Treasury has chosen not to model.”
The IFS estimates that the squeeze on poorer families would increase in the second half of the parliament as welfare cuts kicked in and the two-year increase in child tax credit ended.
Yvette Cooper, the shadow work and pensions secretary, said: “The IFS has confirmed today exactly what we thought yesterday: that George Osborne’s budget was a typical Tory budget – unfair and hitting those on lower incomes hardest. So much for ‘we’re all in this together’.”
Osborne’s aides said that it was legitimate for the government to include pre-announced measures in its analysis of fairness. It was arbitrary to look at Tuesday’s measures in isolation. “What matters is what happens over the course of this parliament,” one said, adding that the richest 10% of the population suffered most from the budget once both Alistair Darling’s and Osborne’s measures were taken into account.
The IFS found that the richest 10% would be 7.5% worse off by 2014-15 because of measures coming into force during the current parliament but that almost seven percentage points of that was due to Labour changes.
The poorest 10% were left almost untouched by Labour’s plans but would see their incomes cut by more than 2.5% over the next five years.
With the IFS estimating that some government departments could face cuts, in real spending, of up to a
third during this parliament, Chote added: “Perhaps the most important omission in any distributional analysis of this sort is the impact of the looming cuts to public services, which are likely to hit poorer households significantly harder than richer households.” The thinktank said that if the coalition wanted to cut spending on schools and defence by only 10% there would need to be reductions of up to 33% in housing, universities and the police. It added that Britain was facing an unprecedented six consecutive years of public spending cuts, which would more than wipe out all the increases under 13 years of Labour.
Osborne said: “If, over the coming couple of months, we can find further savings in the welfare budget, then we can bring that 25% number down. In the end that is the trade-off, not just between departments, but also between the very large welfare bill and the departmental expenditure bill.”
Cameron was twice pressed to explain why tables on the distributional impact of the budget stopped in 2012-13, before £8bn of welfare cuts came into force, and took into account measures announced by the last Labour government.
He replied that he would have two further budgets after 2012-13 that would do more to ease child poverty. But Labour MPs claimed that Cameron’s true intention was, by that date, to have altered the definition of child poverty – a move his new poverty adviser, Frank Field, had recommended.
Darling, the shadow chancellor, also challenged Simon Hughes, the Liberal Democrat leader, to justify claims that the budget was fair when the single biggest measure – the increase in VAT – had been denounced by him only days earlier as “the most regressive form of tax” in that it “penalises the poor”.
Vince Cable, the business secretary, claimed raising VAT was not necessarily regressive, saying the tax was fairly “progressive” due to the exemptions on food, children’s clothing and other key essentials in the expenditure of poorer people.

It is not just the public sector ‘fat cats’ who will feel the pain of pay freeze

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By Sean O’Grady, Economics Editor

Tuesday, 22 June 2010

  • The Independent

David Cameron, Danny Alexander, George Osborne and Nick Clegg
AP

From left: David Cameron, Danny Alexander, George Osborne and Nick Clegg meet at No 10 yesterday ahead of the coalition Government?s first Budget

According to the Chancellor, the public sector has put the nation on “the road to ruin”. The Prime Minister insists that it is “fair” that public workers on £18,000 should have their pay frozen when inflation is running at 5 per cent. The Deputy Prime Minister argues that public sector pensions are “unfair and unaffordable”.

The choreographed process of softening up for today’s Budget has been skilful; barely a day goes by without another grim warning about the dangers to the nation from the build-up of debt, and with it a new round of cuts. Britain is the new Greece, we are told. We need to act, and now.

Yet even if ministers are correct in this analysis – and there are plenty of respected economists who doubt it – it inevitably leaves public servants feeling demonised, scapegoated and abused, despite routine declarations about their hard work and devotion.

True, there are well-documented cases of public sector staff who are paid obscene amounts – local authority chief executives and BBC bureaucrats are egregious examples. Three public servants now earn more than £1m, and 171 are paid in excess of £150,000 a year, more than the Prime Minister. Yet these lucky few have to be set in a context of 6 million public sector workers, the vast majority on unenviable “packages” – the man who empties the bins on £12,000 a year; the nurse auxiliary on £13,000; the classroom assistant on £14,000. Their pensions, when they arrive, will be a few thousand pounds a year, and taxable.

Average regular pay in the public sector, excluding financial services, was £454 per week in April 2010. By comparison, average regular pay on the same basis in the private sector was £419 per week. That is not such an enormous gulf. Public sector pay did catch up with the private sector under Labour, although the gap has not narrowed much in more recent years. But much of that was in response to public shame about the poverty pay that nurses, for example, received. Politicians and parents agreed that gifted headteachers should be rewarded well. Our armed forces remain underpaid by most standards.

In the lean years under the last Conservative government, many low-paid public workers could not even afford the contributions to their supposedly lavish pension schemes. Now reformed, you will receive just 1/80th of your final salary for every year you spend in the NHS. Thus after 20 years, a qualified, experienced nurse will see a pension of just one-quarter of final salary, say £7,500 or so.

The money that goes into the public sector is not uniformly wasted on fat cattery, an obvious point that is worth repeating in the present feverish climate. Most of the core functions of the public sector need to be done, and the state cannot be suddenly cut back without any harmful effects. Students will still need to be taught by lecturers, rotten teeth extracted by dentists, babies delivered by midwives, a war to be fought in Afghanistan, drunks to be arrested on a Saturday night, children to be protected from harm. Less emotively, we will still need stats to be gathered, weather forecasts to be made. We may soon discover just how difficult it is to find real waste in the public sector, and how meanly in reality we look after those who help us with extraordinary dedication. Or is all this more ideologically driven?

Britain is not Greece. We have our own currency, so we are not trapped in a currency zone unable to devalue; our debt has a much longer maturity, so we don’t have to roll it over so often and risk a crisis; our national debt will peak at about 75 per cent of GDP – better than most of Europe, and where it was in the 1960s. At the end of the Second World War it stood at 262 per cent of GDP, and we went ahead and built a welfare state. Most of it is owed within the UK. It is not “out of control”.

Even Mr Osborne’s much-vaunted Office for Budget Responsibility admitted that public borrowing was about £11bn less than anticipated last year, and would be £8bn better this year even if Mr Osborne left Alistair Darling’s plans untouched.

The Liberal Democrats have now apparently undergone a Damascene conversion to Tory fiscal principles. Yet, in a world that seems impossibly remote now, the general election campaign, Vince Cable and Nick Clegg were warning time and again about the dangers of cutting too early, of the panic cuts that could undermine the recovery, of taking risks with people’s jobs and homes. It is odd indeed to hear them sound more Tory than the Tories. The National Institute of Economic and Social Research says a full-blown Tory attack on the deficit would push us into a double dip recession.

There has been some unfortunate briefing too about ministers actually enjoying “throwing the axe around”, taking some sort of sadistic joy in it. And was it not David Cameron who told us not so very long ago that cutting down on waste was the oldest trick in the political book?

To turn the Prime Minister’s soundbite around, the suspicion is that the Government is cutting as heavily as it is not because it has to, but because it wants to.

Case studies: ‘People don’t know how hard we work’

Steve Holman, 50, bus driver in east London. Earns around £29,000 a year

I’ve worked for the same bus company in east London for 26 years, but I’m massively worried about the impact of the Budget on Transport for London.

It’s quite simple – either they pass the cuts on to passengers, which they won’t do, or on to services without affecting passengers, through cuts to wages.

I work anything from a 38-hour week to a 60-hour week. I’ve worked for 26 years, on an average of six days a week – sometimes seven – in order to live in London.

When you speak with the general public they don’t understand how hard we work. We develop an affinity with them though.

I earn £29,000 a year, which is one of the better positions, but we’re not in an enviable position. We take home £350 a week and in London that’s not a king’s ransom, is it?

I’m massively against any cuts in services to London passengers. We’ve spent years building the network up. It will have an effect on passengers travelling on buses.

Bob Sutcliffe, 58, grave digger for Warrington Borough Council. Earns £20,500

I first started working for the council 15 years ago. I enjoy it, but it’s hard work. You never know how much work there’s going to be, and it’s not like you can say, “No, we’ll do it tomorrow.” This week we did nine graves, but it’s a year-round job, and you get more in winter.

We’ve got a mini-digger, but it can’t get to all the plots. If we can use the machine it takes two-and-a-half hours per grave. If we’re doing it by hand it takes all day. There’s five of us, working across four cemeteries, 8 ’til 5.

I don’t think we could be stretched any further, especially as we have to do other jobs too.

Denise Boyce, 26, nurse. Earns £22,663

I qualified in April and work in the neonatal unit at St George’s in Tooting, where I’m doing intensive care training. I work mainly with premature babies on life-support machines, and I help new mums with breast-feeding. It’s hard work but very rewarding – although not financially. We’re the leading neonatal unit for south-west London, but we’re pretty stretched. We’ve got 140 nurses for 36 cots. It might seem like a lot, but that’s on a 24-hour system, and most of the babies require one-to-one care.

There is no logic to the brutish cuts that George Osborne is proposing

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Will Hutton, Observer June 20 2010

The chancellor constantly cites Sweden and Canada as models, but at least they tried to energise their economies

This week’s budget brings on an awesome economic and political moment. The former Labour government had already committed to a greater and faster reduction in the budget deficit than any British government in modern times. The coalition government wants to do more; to nearly eliminate a structural budget deficit of 8% of national output – some £116bn – in five years. Moreover, it wants spending cuts to take 80% of the load. No country has ever volunteered such austerity. It is as tough a package of retrenchment as the IMF imposed on Greece, a country on the brink of bankruptcy. It is twice as tough as the famously harsh measures Canada took between 1994 and 1997. It is three times tougher than Sweden’s measures between 1993 and 1995. In British terms, it is immeasurably tougher than what we did after the IMF crisis in 1976 or after the ERM crisis in 1992.

If we are going to embark on such a course, there has to be a national consensus that it is right. What is proposed, if we are to believe the pre-budget speeches and leaks, is the closest to an economic scorched earth policy we will ever have lived through. If it is to work, we have to be prepared to accept not just enormous economic sacrifice, but to regard it as legitimate. There has to be complete honesty about why the measures are being taken. The reasons have to be unanswerable. The economics must be unimpeachable. The measures themselves have to be extremely skilfully implemented and seen to be fair.

This is not the case just now. Of course the structural deficit has to be eliminated. But Britain has time to make the change. Sweden took 15 years to lower some departmental spending by 20%, not the five years the government plans. We are not in the position of Greece. Britain has a diversified economy. Our cumulative national debt is not large by international standards. Uniquely, the term structure of our debt is very long – around 14 years. Most of this year’s debt will be sold to British domiciled individuals and companies, so the international sovereign debt crisis has much less impact on us. The level of interest on the national debt in five years’ time as a share of national output is more than manageable. These are the truths about the situation; to claim otherwise creates distrust.

I don’t think either coalition partner is aware of how high the stakes are being raised, the degree to which they are unnecessarily backing themselves into a corner, and how much the ground has to be prepared before launching the country on the unprecedented path they plan. For example, each of the counter-arguments I have raised needs to be carefully argued against, not shouted down by hysterical remarks about the sovereign debt crisis or references to private lectures from the not infallible governor of the Bank of England.

Both Mr Cameron and Mr Clegg know that their popularity will fall, but if the coalition really means what it says the consequence could be much worse. The lack of necessity over what is planned could knock the Lib Dems back to where the Liberal party was in the 1950s – a party of the margins – and irredeemably rebrand the Conservatives as the nasty party. The revival of liberal conservatism and the hopes raised by this unique experiment in coalition government will collapse.

George Osborne‘s aggression is hard to understand. The forecasts from the Office for Budget Responsibility show that the outgoing Labour government’s plans were both credible and more than tough enough to arrive at budgetary sustainability. To go beyond them with between £24bn and £50bn of extra spending cuts and tax rises, as is rumoured for Tuesday, is unconscionable and will rightly be challenged. The ground has not been laid; the economics are dubious even for deficit hawks; the support tiny; the implications dire.

It is not too late for a change of course or, at the very least, to reproduce the best of what the Canadians and Swedes did. In neither country was deficit reduction portrayed as a necessity to keep a triple A credit rating on government debt, nor as a vendetta against a “bloated” public sector, as the coalition has suggested. Rather, the measures were sold as a vital period of pain in order to create a platform for much-needed public spending growth in the future. It was important for the legitimacy of both countries’ plans, as an intriguing series of essays, “Dealing With Debt”, from the thinktank CentreForum sets out, that the pain was implemented by parties of the centre and centre-left who believed in public spending. The public was readier to believe the need for cuts. The story in Canada and Sweden was that aggressive belt-tightening would release more spending in future. As a result, both governments could propose short-term reductions in pensions, unemployment benefit, wider welfare benefits and public sector wages as part of the package and get grudging acceptance. In neither country was any department or area of spending ring-fenced.

There were exceptions. Both governments symbolically wanted to show their belief in spending even amid the cuts. The Swedes boosted investment in universities, science and primary and secondry education, and while cutting unemployment benefit, they provided grants for 100,000 young people to go to university. The Canadians made sure that the poorest in Canada were insulated from the cuts. They also launched a national consultation to decide on which cuts and explain the rationale. Even so, it was a hazardous exercise. As John Springford, the essays editor comments, success depended upon a buoyant world economy.

Osborne is said to have studied the Canadian experience, hence his call for a period of national consultation between Tuesday’s budget and the autumn’s spending review, copying what was done in Ottawa. The trouble is that the terms of the consultation preclude any genuine consultation; the assumption is that spending is bad, the state needs to be smaller, nothing is more important than a triple A credit rating, and the British way of life has to change.

It is folly. Not every penny of public spending is well spent. There has to be restraint and the deficit must be lowered. Wages, pensions and welfare transfers must take a short-term hit, as they did in Canada and Sweden. But the government should also be investing in our future. It should be raising taxes on those best able to contribute. Every department should share in the pain.

I am surprised at the Liberal Democrats. They have an obligation to their party, their tradition and the coalition to argue more fiercely for a better presented, fairer, more legitimate and more balanced approach to deficit reduction than the one that is promised. And what is proposed is no good for the Tories either. Number 10 and the Treasury believe the worst can be offset by aggressively low interest rates and more quantitative easing. They will work to a degree. But what is proposed still risks everything. Politicians pay the price with lost office. Millions of British will pay a higher price – the needless squandering of their lives.

This week’s budget brings on an awesome economic and political moment. The former Labour government had already committed to a greater and faster reduction in the budget deficit than any British government in modern times. The coalition government wants to do more; to nearly eliminate a structural budget deficit of 8% of national output – some £116bn – in five years. Moreover, it wants spending cuts to take 80% of the load. No country has ever volunteered such austerity. It is as tough a package of retrenchment as the IMF imposed on Greece, a country on the brink of bankruptcy. It is twice as tough as the famously harsh measures Canada took between 1994 and 1997. It is three times tougher than Sweden’s measures between 1993 and 1995. In British terms, it is immeasurably tougher than what we did after the IMF crisis in 1976 or after the ERM crisis in 1992.

If we are going to embark on such a course, there has to be a national consensus that it is right. What is proposed, if we are to believe the pre-budget speeches and leaks, is the closest to an economic scorched earth policy we will ever have lived through. If it is to work, we have to be prepared to accept not just enormous economic sacrifice, but to regard it as legitimate. There has to be complete honesty about why the measures are being taken. The reasons have to be unanswerable. The economics must be unimpeachable. The measures themselves have to be extremely skilfully implemented and seen to be fair.

This is not the case just now. Of course the structural deficit has to be eliminated. But Britain has time to make the change. Sweden took 15 years to lower some departmental spending by 20%, not the five years the government plans. We are not in the position of Greece. Britain has a diversified economy. Our cumulative national debt is not large by international standards. Uniquely, the term structure of our debt is very long – around 14 years. Most of this year’s debt will be sold to British domiciled individuals and companies, so the international sovereign debt crisis has much less impact on us. The level of interest on the national debt in five years’ time as a share of national output is more than manageable. These are the truths about the situation; to claim otherwise creates distrust.

I don’t think either coalition partner is aware of how high the stakes are being raised, the degree to which they are unnecessarily backing themselves into a corner, and how much the ground has to be prepared before launching the country on the unprecedented path they plan. For example, each of the counter-arguments I have raised needs to be carefully argued against, not shouted down by hysterical remarks about the sovereign debt crisis or references to private lectures from the not infallible governor of the Bank of England.

Both Mr Cameron and Mr Clegg know that their popularity will fall, but if the coalition really means what it says the consequence could be much worse. The lack of necessity over what is planned could knock the Lib Dems back to where the Liberal party was in the 1950s – a party of the margins – and irredeemably rebrand the Conservatives as the nasty party. The revival of liberal conservatism and the hopes raised by this unique experiment in coalition government will collapse.

George Osborne‘s aggression is hard to understand. The forecasts from the Office for Budget Responsibility show that the outgoing Labour government’s plans were both credible and more than tough enough to arrive at budgetary sustainability. To go beyond them with between £24bn and £50bn of extra spending cuts and tax rises, as is rumoured for Tuesday, is unconscionable and will rightly be challenged. The ground has not been laid; the economics are dubious even for deficit hawks; the support tiny; the implications dire.

It is not too late for a change of course or, at the very least, to reproduce the best of what the Canadians and Swedes did. In neither country was deficit reduction portrayed as a necessity to keep a triple A credit rating on government debt, nor as a vendetta against a “bloated” public sector, as the coalition has suggested. Rather, the measures were sold as a vital period of pain in order to create a platform for much-needed public spending growth in the future. It was important for the legitimacy of both countries’ plans, as an intriguing series of essays, “Dealing With Debt”, from the thinktank CentreForum sets out, that the pain was implemented by parties of the centre and centre-left who believed in public spending. The public was readier to believe the need for cuts. The story in Canada and Sweden was that aggressive belt-tightening would release more spending in future. As a result, both governments could propose short-term reductions in pensions, unemployment benefit, wider welfare benefits and public sector wages as part of the package and get grudging acceptance. In neither country was any department or area of spending ring-fenced.

There were exceptions. Both governments symbolically wanted to show their belief in spending even amid the cuts. The Swedes boosted investment in universities, science and primary and secondry education, and while cutting unemployment benefit, they provided grants for 100,000 young people to go to university. The Canadians made sure that the poorest in Canada were insulated from the cuts. They also launched a national consultation to decide on which cuts and explain the rationale. Even so, it was a hazardous exercise. As John Springford, the essays editor comments, success depended upon a buoyant world economy.

Osborne is said to have studied the Canadian experience, hence his call for a period of national consultation between Tuesday’s budget and the autumn’s spending review, copying what was done in Ottawa. The trouble is that the terms of the consultation preclude any genuine consultation; the assumption is that spending is bad, the state needs to be smaller, nothing is more important than a triple A credit rating, and the British way of life has to change.

It is folly. Not every penny of public spending is well spent. There has to be restraint and the deficit must be lowered. Wages, pensions and welfare transfers must take a short-term hit, as they did in Canada and Sweden. But the government should also be investing in our future. It should be raising taxes on those best able to contribute. Every department should share in the pain.

I am surprised at the Liberal Democrats. They have an obligation to their party, their tradition and the coalition to argue more fiercely for a better presented, fairer, more legitimate and more balanced approach to deficit reduction than the one that is promised. And what is proposed is no good for the Tories either. Number 10 and the Treasury believe the worst can be offset by aggressively low interest rates and more quantitative easing. They will work to a degree. But what is proposed still risks everything. Politicians pay the price with lost office. Millions of British will pay a higher price – the needless squandering of their lives.

This week’s budget brings on an awesome economic and political moment. The former Labour government had already committed to a greater and faster reduction in the budget deficit than any British government in modern times. The coalition government wants to do more; to nearly eliminate a structural budget deficit of 8% of national output – some £116bn – in five years. Moreover, it wants spending cuts to take 80% of the load. No country has ever volunteered such austerity. It is as tough a package of retrenchment as the IMF imposed on Greece, a country on the brink of bankruptcy. It is twice as tough as the famously harsh measures Canada took between 1994 and 1997. It is three times tougher than Sweden’s measures between 1993 and 1995. In British terms, it is immeasurably tougher than what we did after the IMF crisis in 1976 or after the ERM crisis in 1992.

If we are going to embark on such a course, there has to be a national consensus that it is right. What is proposed, if we are to believe the pre-budget speeches and leaks, is the closest to an economic scorched earth policy we will ever have lived through. If it is to work, we have to be prepared to accept not just enormous economic sacrifice, but to regard it as legitimate. There has to be complete honesty about why the measures are being taken. The reasons have to be unanswerable. The economics must be unimpeachable. The measures themselves have to be extremely skilfully implemented and seen to be fair.

This is not the case just now. Of course the structural deficit has to be eliminated. But Britain has time to make the change. Sweden took 15 years to lower some departmental spending by 20%, not the five years the government plans. We are not in the position of Greece. Britain has a diversified economy. Our cumulative national debt is not large by international standards. Uniquely, the term structure of our debt is very long – around 14 years. Most of this year’s debt will be sold to British domiciled individuals and companies, so the international sovereign debt crisis has much less impact on us. The level of interest on the national debt in five years’ time as a share of national output is more than manageable. These are the truths about the situation; to claim otherwise creates distrust.

I don’t think either coalition partner is aware of how high the stakes are being raised, the degree to which they are unnecessarily backing themselves into a corner, and how much the ground has to be prepared before launching the country on the unprecedented path they plan. For example, each of the counter-arguments I have raised needs to be carefully argued against, not shouted down by hysterical remarks about the sovereign debt crisis or references to private lectures from the not infallible governor of the Bank of England.

Both Mr Cameron and Mr Clegg know that their popularity will fall, but if the coalition really means what it says the consequence could be much worse. The lack of necessity over what is planned could knock the Lib Dems back to where the Liberal party was in the 1950s – a party of the margins – and irredeemably rebrand the Conservatives as the nasty party. The revival of liberal conservatism and the hopes raised by this unique experiment in coalition government will collapse.

George Osborne‘s aggression is hard to understand. The forecasts from the Office for Budget Responsibility show that the outgoing Labour government’s plans were both credible and more than tough enough to arrive at budgetary sustainability. To go beyond them with between £24bn and £50bn of extra spending cuts and tax rises, as is rumoured for Tuesday, is unconscionable and will rightly be challenged. The ground has not been laid; the economics are dubious even for deficit hawks; the support tiny; the implications dire.

It is not too late for a change of course or, at the very least, to reproduce the best of what the Canadians and Swedes did. In neither country was deficit reduction portrayed as a necessity to keep a triple A credit rating on government debt, nor as a vendetta against a “bloated” public sector, as the coalition has suggested. Rather, the measures were sold as a vital period of pain in order to create a platform for much-needed public spending growth in the future. It was important for the legitimacy of both countries’ plans, as an intriguing series of essays, “Dealing With Debt”, from the thinktank CentreForum sets out, that the pain was implemented by parties of the centre and centre-left who believed in public spending. The public was readier to believe the need for cuts. The story in Canada and Sweden was that aggressive belt-tightening would release more spending in future. As a result, both governments could propose short-term reductions in pensions, unemployment benefit, wider welfare benefits and public sector wages as part of the package and get grudging acceptance. In neither country was any department or area of spending ring-fenced.

There were exceptions. Both governments symbolically wanted to show their belief in spending even amid the cuts. The Swedes boosted investment in universities, science and primary and secondry education, and while cutting unemployment benefit, they provided grants for 100,000 young people to go to university. The Canadians made sure that the poorest in Canada were insulated from the cuts. They also launched a national consultation to decide on which cuts and explain the rationale. Even so, it was a hazardous exercise. As John Springford, the essays editor comments, success depended upon a buoyant world economy.

Osborne is said to have studied the Canadian experience, hence his call for a period of national consultation between Tuesday’s budget and the autumn’s spending review, copying what was done in Ottawa. The trouble is that the terms of the consultation preclude any genuine consultation; the assumption is that spending is bad, the state needs to be smaller, nothing is more important than a triple A credit rating, and the British way of life has to change.

It is folly. Not every penny of public spending is well spent. There has to be restraint and the deficit must be lowered. Wages, pensions and welfare transfers must take a short-term hit, as they did in Canada and Sweden. But the government should also be investing in our future. It should be raising taxes on those best able to contribute. Every department should share in the pain.

I am surprised at the Liberal Democrats. They have an obligation to their party, their tradition and the coalition to argue more fiercely for a better presented, fairer, more legitimate and more balanced approach to deficit reduction than the one that is promised. And what is proposed is no good for the Tories either. Number 10 and the Treasury believe the worst can be offset by aggressively low interest rates and more quantitative easing. They will work to a degree. But what is proposed still risks everything. Politicians pay the price with lost office. Millions of British will pay a higher price – the needless squandering of their lives.

This week’s budget brings on an awesome economic and political moment. The former Labour government had already committed to a greater and faster reduction in the budget deficit than any British government in modern times. The coalition government wants to do more; to nearly eliminate a structural budget deficit of 8% of national output – some £116bn – in five years. Moreover, it wants spending cuts to take 80% of the load. No country has ever volunteered such austerity. It is as tough a package of retrenchment as the IMF imposed on Greece, a country on the brink of bankruptcy. It is twice as tough as the famously harsh measures Canada took between 1994 and 1997. It is three times tougher than Sweden’s measures between 1993 and 1995. In British terms, it is immeasurably tougher than what we did after the IMF crisis in 1976 or after the ERM crisis in 1992.

If we are going to embark on such a course, there has to be a national consensus that it is right. What is proposed, if we are to believe the pre-budget speeches and leaks, is the closest to an economic scorched earth policy we will ever have lived through. If it is to work, we have to be prepared to accept not just enormous economic sacrifice, but to regard it as legitimate. There has to be complete honesty about why the measures are being taken. The reasons have to be unanswerable. The economics must be unimpeachable. The measures themselves have to be extremely skilfully implemented and seen to be fair.

This is not the case just now. Of course the structural deficit has to be eliminated. But Britain has time to make the change. Sweden took 15 years to lower some departmental spending by 20%, not the five years the government plans. We are not in the position of Greece. Britain has a diversified economy. Our cumulative national debt is not large by international standards. Uniquely, the term structure of our debt is very long – around 14 years. Most of this year’s debt will be sold to British domiciled individuals and companies, so the international sovereign debt crisis has much less impact on us. The level of interest on the national debt in five years’ time as a share of national output is more than manageable. These are the truths about the situation; to claim otherwise creates distrust.

I don’t think either coalition partner is aware of how high the stakes are being raised, the degree to which they are unnecessarily backing themselves into a corner, and how much the ground has to be prepared before launching the country on the unprecedented path they plan. For example, each of the counter-arguments I have raised needs to be carefully argued against, not shouted down by hysterical remarks about the sovereign debt crisis or references to private lectures from the not infallible governor of the Bank of England.

Both Mr Cameron and Mr Clegg know that their popularity will fall, but if the coalition really means what it says the consequence could be much worse. The lack of necessity over what is planned could knock the Lib Dems back to where the Liberal party was in the 1950s – a party of the margins – and irredeemably rebrand the Conservatives as the nasty party. The revival of liberal conservatism and the hopes raised by this unique experiment in coalition government will collapse.

George Osborne‘s aggression is hard to understand. The forecasts from the Office for Budget Responsibility show that the outgoing Labour government’s plans were both credible and more than tough enough to arrive at budgetary sustainability. To go beyond them with between £24bn and £50bn of extra spending cuts and tax rises, as is rumoured for Tuesday, is unconscionable and will rightly be challenged. The ground has not been laid; the economics are dubious even for deficit hawks; the support tiny; the implications dire.

It is not too late for a change of course or, at the very least, to reproduce the best of what the Canadians and Swedes did. In neither country was deficit reduction portrayed as a necessity to keep a triple A credit rating on government debt, nor as a vendetta against a “bloated” public sector, as the coalition has suggested. Rather, the measures were sold as a vital period of pain in order to create a platform for much-needed public spending growth in the future. It was important for the legitimacy of both countries’ plans, as an intriguing series of essays, “Dealing With Debt”, from the thinktank CentreForum sets out, that the pain was implemented by parties of the centre and centre-left who believed in public spending. The public was readier to believe the need for cuts. The story in Canada and Sweden was that aggressive belt-tightening would release more spending in future. As a result, both governments could propose short-term reductions in pensions, unemployment benefit, wider welfare benefits and public sector wages as part of the package and get grudging acceptance. In neither country was any department or area of spending ring-fenced.

There were exceptions. Both governments symbolically wanted to show their belief in spending even amid the cuts. The Swedes boosted investment in universities, science and primary and secondry education, and while cutting unemployment benefit, they provided grants for 100,000 young people to go to university. The Canadians made sure that the poorest in Canada were insulated from the cuts. They also launched a national consultation to decide on which cuts and explain the rationale. Even so, it was a hazardous exercise. As John Springford, the essays editor comments, success depended upon a buoyant world economy.

Osborne is said to have studied the Canadian experience, hence his call for a period of national consultation between Tuesday’s budget and the autumn’s spending review, copying what was done in Ottawa. The trouble is that the terms of the consultation preclude any genuine consultation; the assumption is that spending is bad, the state needs to be smaller, nothing is more important than a triple A credit rating, and the British way of life has to change.

It is folly. Not every penny of public spending is well spent. There has to be restraint and the deficit must be lowered. Wages, pensions and welfare transfers must take a short-term hit, as they did in Canada and Sweden. But the government should also be investing in our future. It should be raising taxes on those best able to contribute. Every department should share in the pain.

I am surprised at the Liberal Democrats. They have an obligation to their party, their tradition and the coalition to argue more fiercely for a better presented, fairer, more legitimate and more balanced approach to deficit reduction than the one that is promised. And what is proposed is no good for the Tories either. Number 10 and the Treasury believe the worst can be offset by aggressively low interest rates and more quantitative easing. They will work to a degree. But what is proposed still risks everything. Politicians pay the price with lost office. Millions of British will pay a higher price – the needless squandering of their lives.