All three main political parties insisted at election time that frontline services for healthcare would be protected from spending cuts. This suited the Conservatives at the time with health an issue on which the public trusted Labour more. However, health expenditure has grown to more than 9% of GDP and around 20% of public spending. Does it still make sense to continue to ring-fence Health (and overseas aid), when this means that non-protected government departments face 25% real cuts on average by the end of this parliament? Indeed, if in addition Education and Defence are each limited to 10% cuts, real cuts elsewhere could reach 33%. This places a heavy burden on Welfare reform and Ian Duncan Smith the Work and Pensions Secretary, who has soon to outline a programme to start to make work pay for millions of people solely dependent on benefits, whilst making savings elsewhere. He has already announced plans to phase out the default retirement age and raise the State Pension age to 66 by 2016. Couples and lone parents will also have to downsize when their children leave home and housing benefits will be cut.
The tax increases and spending cuts announced by George Osborne add up to £40 billion by 2014/15 and, according to the Institute of Fiscal Studies (IFS), £52 billion by 2015/16. However, he did not mention that his £40 billion will account for only 35% of the planned austerity programme for the next four years, the majority already laid out for him by Alistair Darling, the former Chancellor, to cut the deficit by £73 billion by 2014/15, including a 60% drop in public sector net investment although Labour had not carried out a detailed spending review of where these cuts might apply. Thus Alistair Darling was still able to state in the Commons that the cuts could not be carried out in this form and leave the Tories with their reputation for heartlessness, unless e.g. Ian Duncan Smith and his coalition team can convince the country otherwise through their actions and by more temperate language than in the past, that there is indeed some light at the end of the tunnel.
On one hand, the independent Office for Budget Responsibility (OBR) forecasts that with growth increasing to an average 2.75% per year, employment reaching over 30 million and unemployment correspondingly falling, and with inflation within the Bank of England target of 2%, the deficit will be eliminated. At the other extreme, there is a double-dip recession because of the state of the worldwide economy and public borrowing will be 6% of GDP by the end of this parliament. Put another way, either the private sector runs down the short term surpluses it has built up from temporary retrenchment during the recession and becomes the prime driver of growth (as foreseen by the coalition), or it has moved into a protective mode of long term financial surplus with the public sector then forced to run a deficit to compensate, as in the stagnating Japanese economy of the past decade.