Slice not structure

Two weeks ago, when launching the Spending Review, George Osborne called for a once-in-a-lifetime debate about the shape of government in the UK.  He implied that there is a right and a wrong way to cut the deficit.  It would be right to cut spending by addressing the structural causes of the deficit - i.e. public sector inefficiency and the UK's unwillingness to cut its pensions and health entitlements.  It would be wrong to leave the shape of public services and welfare unchanged, but limit their costs temporarily – “salami slice” – with public sector pay freezes for instance.   Today George Osborne opted for the slice: a two year freeze in public sector pay (rather than linking pay with performance), a three year freeze in child benefit (rather than withdrawing it from middle and high earners), a slightly lower rate of increase of benefits and a slightly lower rate of increase of tax thresholds.  The general sense was that his ambitions for government were similar to that of the last administration.  That sense was reinforced by his last two measures.  Increasing the state pension in line with earnings suggests that Britons should look first to the government for support in retirement (as well as increasing the cost of already unaffordable pension commitments).  Increasing benefits for people on low incomes with children suggests that redistribution is still the right answer to poverty, as against other ideas such as education reform.   Clearly this isn’t the last word in the story because the Spending Review is to come.  And given the deadline of 50 days, the temptation to take the short term measures would have been almost irresistible for any Chancellor. And George Osborne has achieved the main thing which is to commit to eliminate the deficit in one Parliament.  But in his own terms, he has started the cuts in the wrong way.

Andrew Haldenby is director of Reform