According to new analysis from the Institute for Fiscal Studies, should all three of Britain’s main political parties meet the budget commitments detailed in their election manifestos, then the UK looks set to face the biggest public spending cuts in over a generation. The report suggests that Labour and the Liberal Democrats will have to make cuts on a scale not seen since the 1970s, when Prime Minister Jim Callaghan’s government was forced to turn to the International Monetary Fund for help in propping up the country.
In face of the UK’s record deficit, all three political parties have been strikingly reticent about their economic plans – with all of the manifestos significantly under-reporting the likely historic austerity measures that will have to be implemented. In monetary terms, the Conservatives, who are seeking to close the budget deficit the quickest, would have to find savings of £63.7 billion by 2014/15. If implemented, such a reduction in spending would represent the sharpest, most sustained public spending cuts since the end of World War II. To date the Conservatives have identified only 17.7 per cent of these reductions.
Labour needs to find cuts of £50.8 billion, but have identified just 13.3 per cent of them. And the Liberal Democrats, who plan to raise taxes the most, have only so far identified a quarter of the £46.5 billion savings they would need to find.
All three parties have so far identified a number of third rail issues that will not face cuts, for example in public health, education or in some cases, defense. As such, whoever leads the next government will be forced to make the savings by reducing spending from unprotected areas, such as the majority of government departments, projects and welfare programs.
Such will be the dramatic impact on public spending that the Financial Times (FT) has created an online ‘game’ in which players can decide how best to claw back the money required. Some of the options available to players include cutting funding to Scotland, Wales and Northern Ireland by 10%, stopping the building of primary and secondary schools for three years, freezing all benefits and tax credits for a year, and cutting the public sector payroll by 7%. But even combining these four suggestions, a Government would only save £22.6 billion, well short of the figures suggested by the IFS.
The proposals put forward in the FT simulation represent some realistic approaches to reducing the budget deficit. But when asked which of them Labour would not implement upon winning an election, Secretary of State Peter Mandelson sheepishly responded ‘When I last looked, neither the IFS nor the FT was standing in this election’.
Interestingly, the FT’s simulation does not offer players the option of scaling back on Trident renwal, because it ‘would not save enough money over the three-year period to be included.’ This is a fair point, because current proposals to reduce the fleet of Trident submarines from four to three will lead to only modest savings of approximately £3 billion.
Perhaps, then, it is time to think on a grander scale. With the winning Government scheduled to make the main investment in Trident renewal (estimated to cost up to £76 billion) between 2012 – 2014, it now seems the perfect time to re-evaluate the necessity of Britain’s nuclear weapons.
This wouldn’t be the first time that proposals to eliminate the UK’s nuclear arsenal received a hearing at the highest levels. When the UK last faced similar economic problems, some voices within Prime Minister Callaghan’s government suggested that serious thought be given to sacrificing Trident on the altar of economic solvency.
The difference between now and then of course, is that the UK’s economic troubles coincide with the fact that the Cold War has ended and the UK now faces a far less threatening international threat environment.
While there would certainly be costs associated with abolition, as much as £76 billion could be saved in the short-term by deciding not to pursue a follow-on to Trident. Doing so could also make substantial inroads into reducing the budget deficit. Furthermore, the fact that the move is supported by 58% of the electorate suggests that it could be achieved without too much political pain.
If the figures presented by the IFS are indeed accurate, then the only alternative will be to pursue a harsh austerity plan. And as the example of Greece shows, following this policy could prove dangerously unpopular with the electorate.