Cutting public spending creates more votes for the Conservatives in 5 years time?

An interesting angle on the budget has been provided by James Forsyth in the Spectator.  Forsyth portrays George Osborne as a Tory equivalent of Gordon Brown, seeing the budget in terms of political calculation.  He believes that whereas Brown created Labour voters by adding to the state payroll, Osborne will add to Conservative vote by making the private sector bigger. 

He says

“This is the strategy that underpins Osborne’s first Budget. The headlines were, predictably, about cuts. But this Budget can be seen as Osborne taking charge — in every respect. It is the first dramatic step in his plan for Britain. Osborne’s agenda is distinct from (but by no means hostile to) David Cameron’s. The aim is a majority Conservative government. If the plan succeeds, there’ll be no need to have the Lib Dems in government in five years’ time.”

Later he says:

“The mission, as Mr Osborne sees it, is to shrink the public sector and grow the private sector — the classic goal of the modern British centre-right. The Budget is ambitious on this front. It will reduce the state’s share of the economy to below 40 per cent by the end of this parliament, reversing the rise of the state under Labour. Shirley Letwin argued that the Thatcher government unleashed ‘vigorous virtues’ through its reforms. According to her, Thatcher transformed the country and society by rewarding the strivers and anyone who was serious about self-improvement. This is what Mr Brown eroded, not just by employing 700,000 more voters but by offering low-level welfare to millions.”

Can the battle between Labour and the Conservatives be summed up as simply as that?

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2 Responses to Cutting public spending creates more votes for the Conservatives in 5 years time?

  1. shane says:

    “It will reduce the state’s share of the economy to below 40 per cent by the end of this parliament, reversing the rise of the state under Labour. ”

    The share of the state actually fell for the first five years under Labour. Public spending as a proportion of GDP fell to 36.3 per cent in 1999-2000, the lowest point on record since 1945. The Tories actually complained at the time that this was unnecessary (as did the LibDems). But Labour did spend indulgently after 2002 and public spending climbed to half of GDP by 2007, which left the UK economy ill-prepared to face the credit crunch.

    “It will reduce the state’s share of the economy to below 40 per cent by the end of this parliament, reversing the rise of the state under Labour.”

    There’s no guarantee this will happen. It all depends on economic fortunes; Germany’s austerity package, inflation, VAT increase, rising value of the pound, etc, will all have an incalculable impact on the private sector.

    “Just as the delayed VAT cut is designed to push forward new spending[….]”

    What’s the point in delaying the VAT rise? Unions will anticipate the inflationary effect and put in higher wage claims. This will undermine competitiveness.

    James hopes the fact that VAT will rise in a few months will spur enough people to buy in the interim. Ironically the Conservatives opposed Gordon Brown’s previous (temporary) VAT cut in 2008 warning that it wouldn’t increase consumption. They were vindicated by events.

    This is a case of putting all your eggs in one basket (what happens after January – a huge slump in trade?) and might be dangerous if the economic situation deteriorates. The Bank of England may soon be forced to raise interest rates because inflation – propelled by nearly zero interest rates and quantitative easing – consistently keeps exceeding its predictions. Not a nice thing to have to happen during an austerity budget.

    • Seymour Major says:

      I know that Government borrowing fell in the first few years under Labour. That was a period of very strong growth. Labour had it very easy in that period.

      One of my understandings of this budget is that it is structured so that the reduction in Government borrowing will now make it less likely that the Bank of England will have to raise interest rates to keep down inflation. The increase in inflation caused by the VAT rise will come out of the inflation figures after a year and wont, by themselves result in serious Monetary intervention. In fact, the anticipated slowdown in economic activity after January is more likely than not to ease that pressure.

      There are many unknowns that could have an impact on what happens to the economy. One of them is what the reaction of businessmen will be. It will now be crucial for the Government to stick to the targets to maintain confidence and attract investment, whatever surprises and difficulties there may be along the way.

      I believe the biggest potential headache is the reaction of the unions to increasing stresses on pay and redundancies. We can expect strikes. When services are disrupted by industrial action, that is what will be the hardest test for the Government.

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