May 13, 2010
The idea of Vincent Cable laying into the banks may have a certain allure, and a British equivalent of Glass-Steagall may be a surprising development to come from any Tory-led administration. After all, the Tories fought the election on a manifesto that seemed to confirm that they were determined to protect the bankers’ dominant position.
Much is made of the fact that the coalition’s current tax policy is an improvement on the Tory original, though even superficially laudable ideas such as a higher tax threshold are actually regressive in their impact. More importantly, when it comes to the big fiscal issue, the tax changes are small beer, and their overall effect is to increase cuts in public spending. And this is where it becomes most interesting.
First, the Treasury’s existing plans for public spending already imply cuts to government departments of £37bn (2.5 per cent of national income) a year by 2013-14.
Added to this, the coalition agreement has committed the parties to increases in spending on overseas aid with an annual cost of £4bn; fresh income tax cuts with a price tag of about £5bn, as a downpayment on the Lib Dem plan to raise income tax thresholds; £3bn a year for avoiding some Labour tax increases; faster deficit reduction, which implies additional spending reductions of about a further £8bn; a jobs package at £600m; more funding for poor school pupils at £2.5bn; and higher old-age pensions costing about £2bn.
Set against this are near-term plans to raise taxes on aviation of £3bn and capital gains tax of about £2bn.
Put this together and Mr Osborne will have to announce public spending cuts of £57bn a year by 2013-14 from a non-protected budget of about £260bn – cuts of about 22 per cent. [emphasis added]
The welfare system is likely to be one of the most contentious areas where cuts are introduced. Given that pensions are projected to rise, and the link with earnings eventually restored, the main brunt of any cuts will probably fall on benefit claimants, whether they are on the risibly low job-seekers allowance or disability allowance.
Obviously, this entails a highly confrontational government, one whose outlines are not disclosed in the soothing bromides about strong and stable government that the coalition partners are laying on us. The Tories had already warned in opposition that they were prepared to take on the unions in a big way to ensure that the cuts go through, and the Liberals will back them.