Politicians And Voters Are All Colluding In This Financial Deception

(Martin Kettle) – HISTORY may never repeat itself. But it does echo. The combination of Michael Foot’s death and a mini-run on the pound this week stirred memories of a miserable era in British politics. The 1970s were marked by an unresolved economic crisis in which a weak government was trapped between suspicious markets and angry voters and unions. Plenty has changed since those days, but the 2010s look increasingly miserable and embattled too. Yet you wouldn’t know it from the mood of denial in the skirmishes.

We must say what the party leaders still fear to say. This country faces fiscal choices of an enormity unseen in modern times. The public deficit of £175bn is worse than anything most of us have known. As a proportion of GDP, it puts Britain in the Olympic league for developed economy deficits. You have to go back to the Foot-Thatcher era to find anything remotely comparable – maybe even to the Geddes axe, which cut public spending by a quarter in the 1920s. The present crisis may indeed be the fault of the banks, not the taxpayer, and the currency markets may be perverse to tilt at sterling on the prospect of a hung parliament. But a crisis isn’t less of a crisis just because it’s outrageously unfair or illogical. In many ways, the opposite is true.

Right now, moreover, Britain is going through a sort of phoney war that cushions us from the truth. Political realities still seem not so very different from those with which we have grown familiar. Public expenditure is set to rise in real terms this year. Labour plans for it to go on rising next year too. Tougher times may be just round the corner, but the highly fragile nature of the recovery, about which the John Lewis chairman warned this week, means that the fateful corner is still many months distant.

This phoney war begets phoney pre-election politics, which suits both sides. Labour and the Conservatives are deliberately opaque about what they would do afterwards. In both parties, the impulse to honesty battles partisan self-interest and loses. The argument has been conducted in a fog of fatuous euphemisms (investment versus cuts), or over epiphenomena – a law to balance the budget without actually saying how, arguments about whether to start cutting in 2010 or in 2011. The debate clings to comfort zones. All sides talk about efficiency savings rather than face up to service cuts, job losses or pay policies. The return to growth will ease the dilemmas, it is said, but the dilemmas are now and the growth is some way off.

The latest oasis of euphemism in which the parties have pitched camp is frontline services. “Frontline good, back office bad” is the current mantra. But where is the front line without a back office? If you want to see a doctor, you have to ring the receptionist. But if you sack the receptionist you don’t get to see the doctor. All too often “frontline” is simply a fuzzy, feel-good phrase that allows politicians and voters to collude in the deception that everything can be solved by squeezing out the bureaucrats. Gordon Brown made a speech this week insisting that the police must spend most of their time on the beat. But if that happens he will soon be employing more back-office staff to fill the gap, the opposite of a saving.

Things are made worse, not better, by ring-fencing. We will protect the NHS budget, say Labour and the Tories. Quite right, say the voters. But Plato pointed out that what the people want is not necessarily what is good for the state. The NHS is the single largest slice of the public-spending cake – one tax pound in every six goes on health. Ruling the NHS off-limits means deeper cuts everywhere else when the unmentionable time finally comes – except that schools and the police have been designated untouchable too, along with overseas aid. The more you ring-fence the big-ticket items such as health, pensions, benefits and defence, the more you have to axe the smaller ones – fire services, libraries, environmental protection and the arts – at which point everyone suddenly discovers that these services were much more popular than everyone assumed. “Save the local library” becomes tomorrow’s equivalent of the “Save the local post office” of yesteryear.

Politicians need to be straight about the fix we are in. The increasingly respected Alistair Darling could give a lead in his March budget. We have paid out billions to keep the financial sector working, and the financial sector has stopped generating the taxes that kept the public services afloat. It was the peacetime equivalent of a war for survival. Now we all, led by the bankers, have to pay our share of the bill. In private this is widely understood – in public too, as local authorities are increasingly signalling. Nationally, this means higher taxes or spending cuts, probably both. If there is a hung parliament, and the market vultures threaten, it may mean a grand coalition government. No party wants to face any of this, hence the cautious mutual circling in the fog of euphemism. But the less that is said now, the higher the price later, both fiscally and politically. None of this is good for politics or government.

So let us have an election debate about real options, not phoney ones. Let us talk about the relative balance between higher taxes and lower spending – but don’t pretend that the whole answer lies in one rather than the other, or that the higher taxes won’t fall on people of average earnings as well as on wicked bankers. And let us debate the best approach to cutting expenditure. Should we, like Sweden, say that nothing is ring-fenced and cut every budget, the NHS included, by the same amount – 5% or 10% or whatever? There is a rough-and-ready equality of suffering there which might make that approach easier to sell. Or do we, as Canada did, take large strategic decisions to slash some big-ticket budgets – which could mean means-testing some benefits, scrapping the prison-building programme, scaling back the navy and cutting doctors’ salaries.

Either way, let us get serious. In California this winter, Arnold Schwarzenegger floated the possibility of passing a law to reverse the current shares of the state budget that go on prisons and universities. In the 1980s, prisons got 4% and universities 11%. Today the figures are 9.5% and 5.7%. It is hard to think of a more dramatic way of posing the question of whether a society has got its priorities right. OK, the governor has a gimmicky way of posing spending choices. But it is exactly the kind of primary-coloured political argument about priorities that we so badly lack here. And it is the one we desperately need in the coming weeks.

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