‘Die is cast’ on spending cuts
Britain’s politicians are unavoidably committed to public spending cuts because a U-turn risks triggering a sovereign debt crisis, an expert has warned.
Colin Hay of Sheffield University argued in an article published in the December issue of the British Politics journal that it “may well be too late” for the government to undergo a rethink of its stance on deficit reduction.
This autumn’s comprehensive spending review outlined plans to return public spending as a percentage of GDP to its 2006/07 levels, in the most sweeping package of austerity measures seen in Britain for a generation.
Decisive action in the emergency Budget earlier this year sent a signal to markets that Britain was unlikely to maintain a high public spending deficit long. Chancellor George Osborne has repeatedly argued the stability this has brought will help return the UK economy to growth.
Now Mr Hay argues the risk of abandoning this commitment makes spending cuts a near-inevitability.
“With all three major political parties having committed themselves during the election campaign not only to putting deficit reduction before growth but to a remarkably severe and inflexible timescale for delivering such deficit reduction, there is a clear and obvious danger that any stepping back from this be taken by the markets as an indication of the likelihood of default on sovereign debt,” he wrote.
“In short, it may well be too late for such a profound rethink of the government’s stance towards deficit reduction. To a significant extent, the die may already be cast.”
The recent bilateral bailout of Ireland approved by Mr Osborne will have underlined this logic still further. The chancellor said Britain would be in a similar position to countries like Spain, Portugal, Italy and Greece if it had not taken action to address the gap between its spending and tax receipts.
Mr Hay suggested despite these measures the economy still faced a substantial risk of slipping back into a double-dip recession, however.
He added: “Should that prove to be the case, the coalition will come under appalling strain – and by this time next year there could even be a new prime minister in No 10.”
If the prime minister can survive initial economic difficulties he is more likely to survive, Mr Hay argued. Either way, he suggests 2010 – or the 2010/11 financial year – will be seen as “the key date in the political and economic history of Britain in the early part of the 21st century”.
Mr Hay concluded: “If I am right, it may come to be seen as a year of genuine transformatory significance – the start of some significant things, the end (or, at least, the beginning of the end) of others.”
