Ignore the fine print, the Tories are looking to shrink the state

Forget the general election manifesto, today’s Autumn Statement that covers the four years from April 2016 almost precisely up to the next election is the government’s real statement of intent.

It is hard to remember now that few people - including many in the Conservative party - expected the Tories to win this year’s general election.

Many policies were put in the election manifesto that would most likely be negotiated away as part of the process of negotiating a coalition. Top of this list was the commitment not just to eliminate the deficit but to a £10 billion budget surplus in the final year of the current parliament.

So what have we learned? The immediate headlines will go to the decision to scrap the proposed £4bn a year cut in tax credits for the poorest - a painful but efficient way to cauterise a self-inflicted wound. Amazingly £3.3bn of that hole will be filled by 2020/21 by a change to the way that VAT receipts forecasts are “modelled”.

The hike of 3% in stamp duty for buy-to-let is a classic measure normally saved for a Budget that will both help fill the hole and belatedly take some steam out of an activity that has helped drive up house prices to vertiginous levels, particularly in London.

But it is the long-term decisions running up to the end of the parliament that can really give an insight into the government’s agenda - its raison d’etre so to speak.

The first significant decision by Chancellor George Osborne was to stick with his plan to end the parliament with a £10bn surplus. He could have lowered that goal and had hinted he might on the Andrew Marr show last Sunday but decided against.

MANY PUBLIC SERVICES ARE GOING TO FACE A SAVAGING

This lays down a clear dividing line between Labour and the Tories - as if one were needed. The Conservatives are determined to set balanced public finances as a virtue in themselves while Labour will argue that public services should not be sacrificed on the altar of fiscal rectitude.

Which brings one on to the second main point. Many public services are going to face a savaging: Transport minus 37%, Business, Innovation & Skills minus 17%, Defra minus 15%, Energy minus 22%, and Culture, Media and Sport 22%. Meanwhile £12bn of welfare spending cuts need to be found.

While the scale of the cuts is determined by the government’s decisions to protect pensioners, schools and foreign aid and put more money into the National Health Service, these are still big numbers.

More importantly the overall ambition is to shrink the size of the state. Total managed expenditure is forecast to decline by 3.2% of GDP, from 39.7% in 2015-16 to 36.5% in 2019-20. You have to go back to the 1950s and the era of Anthony Eden and Harold Macmillan to find anything smaller.

This should be the real takeaway from the one hour eight minutes statement: the state will be smaller by a quarter than it was at the start of the Coalition government.

The third point, and the result of the first two, is that people and businesses will have to pay more for public services out of their own pocket. We have already seen that with university tuition fees but now nurses will have to get a loan not a grant for their training and businesses will be forced to take on the cost of creating millions of extra apprentices.

The National Health Service is getting £6bn of much-needed frontloaded cash but at the same time has to find £22bn billion efficiency savings promised, as well as managing a 25% cut in the Whitehall budget of the Department of Health. As PwC pointed out the £6bn just provides the NHS “breathing space”.

As local councils face further funding cuts — at the same time they have to implement a 2% hike in Council Tax to pay for social care - the people will see fees for libraries, recreation centres and other services rise and charges applied to amenities that used to be free.

Perhaps the implications of this one-off transfer from the public to the private can be best summarised in the Chancellor’s decision to use £15m raised from the so-called “tampon tax: to support women's charities. So women will literally have to pay for urgent help with their own blood.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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