Sunday 24 October 2010

Comprehensive spending review: What does it all mean?

After months of debate and speculation we finally had the government’s Comprehensive Spending Review this week.

The size of the state is going to be reduced drastically, with public spending being slashed in order to bring down the country’s huge budget deficit.

Everyone's going to lose out in some form or another. The rich, the poor, and the ‘squeezed middle’, but who’s going to lose out the most?

I’ve been hearing so many conflicting comments and opinions that I still don’t know who or what to believe?

The main areas of argument and debate that I can see are these:

1. Who will suffer the most from the cuts?

2. With an estimated 500,000 jobs being lost in the public sector, will there be enough new jobs in private sector to counter balance these losses?

3. Finally, How fast and how deep should the spending cuts be? Will the government’s plans to reduce the deficit get the economy growing, or will it put economic recovery at risk, and send us back into recession?

I find it really hard to decide who’s right or wrong, and some days I just think these questions can’t be answered for another 3 or 4 years.

If you read the press, their views on the cuts differ according to their political leaning.

So the likes of The Telegraph reported that spending cuts would hit the middle classes hardest, but if you read the Guardian, then it’s the poor that will suffer the most.

I didn’t bother reading much of the Press last week because I wanted a more neutral independent analysis of what these cuts all mean.

Over the last year or so I’ve found that if you want that independent analysis on government spending policy, you need to listen to the findings of the Institute for Fiscal Studies (IFS).

The government has argued the cuts are fair, but the IFS has contradicted this claim by stating that those on the lowest incomes will suffer the most.

Nick Clegg then responded to the IFS’s findings by saying they were being unfair against the government.

Moving onto Public Sector jobs, the cuts will result in a drastic shrinking of the state. I accept that in some parts of the country the public sector has become the biggest employer and this needs to be reduced.

I am however a little sceptical on how much the private sector can grow in order to replace those jobs lost in the public sector.

Secondly, I don’t think there’s enough debate on the type of private sector jobs that will be created.

A private sector job could mean anything. It could be stacking shelves in Tescos, are we meant to believe that a redundant middle ranking civil servant in their 40s or 50s is going to be happy doing that sort of job?

If the people are going to lose their jobs in the public sector, they’ve got to be given job opportunities in the private sector that meet their core skills, experience and salary expectations.

I’m just not convinced that the employment market in this country if flexible enough to allow so many people to move successfully from the public to private sector.

My final point is the speed of the cuts. The argument from the government is that there needs to be faster deeper cuts in order to reduce the budget deficit and get the economy growing again.

The other side of the argument says the deficit needs to be cut over a longer period, with more emphasis on getting the economy growing immediately. Only with a stronger growing economy can you tackle the budget deficit.

Both arguments have their merits, but I don’t know which one is going to work.

To help me decide, I sometimes try and look at things from a personal point of view.

If I had a huge l debt problem, my main priority would be to pay that debt off as quickly as possible, rather than saving or investing.

I suppose I’m probably leaning towards the government’s policy on this one, but I do worry about future growth.

You need a crystal ball to predict these things, it’s so difficult!

It’s taken me almost 2 and half hours to think about this and try and get some thoughts down for you to read.

It’s complex stuff. I’m going to stop here for now, but sure I’ll come back and discuss this further as the affects of the cuts start to reveal themselves.

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