Painful spending choices will happen, even if a future Labour chancellor can avoid an outright cut in expenditure

7th December, 2012 4:50 pm

P.G Wodehouse said ‘it is a good rule in life never to apologise’. As he delivered a grim Autumn Statement to the House of Commons on Wednesday George Osborne demonstrated his commitment to this maxim. Once again the Office for Budget Responsibility revised down UK growth forecasts and the Chancellor confirmed that austerity would continue until 2018. But he rejected any claim that his economic plan was to blame. Better to massage the numbers and pin the worst of it on Europe.

George Osborne was never going to waver at the dispatch box. In spite of the unprecedented length of fiscal consolidation and the longest recession since the second world war, there was never any doubt we would hear that the government was making ‘progress’.

But the Autumn Statement does shift the ground, especially for those of us thinking about who might govern after the next election, because it unveiled austerity for three years of the next parliament. This alters the context in which a 2015 administration will make spending decisions as well as the election which delivers that government.

With some irony a 2015 Labour government would be able to repeat the Coalition’s line on a toxic economic inheritance. But it should not distract from the difficult choices about public spending it would then confront.

Given Wednesday’s figures the spending envelope will be extraordinarily tight so Labour politicians must start thinking now about how to pick priorities if we are elected to office. We’ve crunched the numbers and it looks like the chancellor’s plans would mean spending falling by £9 billion in real-terms between 2015 and 2017. The figures look especially grim for public services which can expect a cumulative cut of more than 7% over those two years. Although, these long-term projections are bound to be revised, the recent past suggests the numbers could end worse not better if the economy ends up growing by less than the OBR predicts once again.

The Fabian Society’s Commission on Future Spending Choices, which meets for its second hearing next week, will give a full airing to these questions but frontline Labour politicians should be ready to join the debate too. The commission will be looking at the alternatives to the coalition’s plans and asking whether modest spending increases will be affordable, for sticking to Osborne’s cuts will hurt those who need our help most and leave us with precious little opportunity to differentiate ourselves in 2015.

But painful spending choices will happen, even if a future Labour chancellor can avoid an outright cut in expenditure. Our inquiry’s ‘exam question’ is how a centre left government should restrain spending while maximising prosperity, sustainability and social justice. We’re starting by considering whether government can reduce demand for spending through early intervention or economic reforms in the labour or housing markets. We will also look at where spending might ‘pay for itself’ either by generating future revenue or boosting growth and tax receipts.

However, although ideas in these areas will hopefully reduce some of the pressures, the commission will inevitably have to look as well as the ‘least bad’ ways to hold down spending. In this we will cover both public services, which are bearing the brunt of the cuts in this parliament, and social security, where there are always upward pressures, due mainly to spending on the state pension (rightly) increasing.

So while the media narrative on the autumn statement focuses on Osborne’s duplicity and Ed Balls’ stammer, for Labour the increasingly negative outlook for 2015 portends long-term challenges for its own future programme for government. How the party makes those choices in order to offer credibility and hope will be the central challenge for Labour’s political strategists in the next two and half years.

Andrew Harrop is the General Secretary of the Fabian Society

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