As David Cameron cycled to the House of Commons on Wednesday morning he had
one objective on his mind. How could he expose as false Gordon Brown’s
pledge to keep increasing public expenditure? Could he show that the prime
minister had been less than truthful in the recent rows over a key issue in
the recession?
Arriving at his office, Cameron told his senior staff to tear up plans to use
that morning’s prime minister’s questions to focus on the inquiry Brown had
announced into the Iraq war.
Instead he and George Osborne, the shadow chancellor, Oliver Letwin, the
Tories’ policy guru, and Michael Gove, the schools spokesman, began
ploughing through a copy of the Treasury red book containing the
government’s measures on tax and spending.
“There was none of the usual banter,” said one source at the meeting. “David
was utterly determined to find the proof he needed. He had to ensure Gordon
could not wriggle off the hook this time.”
The team zeroed in on a claim made by Brown in the Commons the previous week
that capital spending would “grow until the year of the Olympics”. Cameron
discovered that the red book figures showed expenditure on infra-structure
such as schools, roads and hospitals would in fact fall from £44 billion
next year to £26 billion in 2012.
This simple fact was deployed with devastating effect at prime minister’s
questions. Though Brown blustered about Tory plans for cuts, he could not
deny the truth of data that had been produced by his own officials.
Cameron had one other trick up his sleeve. He quoted extensively from the
front-page story in The Sunday Times last week, which revealed cabinet
disquiet about Brown’s insistence that Labour would increase spending.
Ministers shook their heads in mock outrage, but the disarray was obvious -
and soon intensified.
A few hours later Mervyn King, the governor of the Bank of England, in effect
accused the prime minister of mis-managing the public finances. “We are
confronted with a situation where the scale of deficits is truly
extraordinary,” he told the Commons Treasury committee. “This reflects the
scale of the global downturn, but it also reflects the fact that we came
into this crisis with fiscal policy on a path that wasn’t sustainable.”
The Tories were jubilant.
Perhaps now, they thought, voters would realise that, with the Treasury
deficit forecast to rise to £175 billion this year, whoever wins the general
election will have to reverse the growth of public spending.
Philip Hammond, the shadow chief secretary to the Treasury, said of Brown:
“The argument comes down to a choice between the Conservatives who are
telling the truth – that it is going to be tough – and a Labour party that
cannot face up to the facts.”
As claim and counterclaim continue, which party is telling the truth? And
which party’s arguments are proving more persuasive with voters?
THE genesis of the spending row lies in an interview given by Andrew Lansley,
the shadow health secretary, on BBC Radio 4’s Today programme on June 10.
Unprompted by the interviewer Lansley said that while a Tory government
would protect the National Health Service, there would be a “10% reduction
in the departmental expenditure limits for other departments” after 2011.
Labour leapt on the statement, portraying the Tories as the “party of cuts”
while Labour would keep on spending. Cameron had little choice but to take
the hit. The Tories had already warned that spending restraint would be
needed. Lansley had merely put a figure on the scale of the cuts.
However, as Labour prolonged the row, ministers started to face some awkward
questions. In particular: “If the Tories are going to cut spending, what
will you do?”
Andy Burnham, the health secretary, said: “We will continue to maintain . . .
growth in health spending.” And Ed Balls, the schools secretary, said he
could see “spending on schools and hospitals rising in real terms after
2011”.
It was policy making on the hoof. There were no Treasury figures to back up
his assertion. Alistair Darling, the chancellor, and Liam Byrne, his
assertive deputy, hurried to impose control. Hours after Balls’s remarks,
Byrne told journalists there were no planned spending increases.
If Darling and Byrne thought they had restrained their excitable colleagues,
they had reckoned without Brown. At prime minister’s questions last week,
Brown reopened the row, promising a rise in “real terms current
expenditure”.
How could Brown make such a claim when the country’s borrowing is soaring to
levels the Bank of England regards as unsustainable? Even as the political
row raged, the answer was being given by the respected and independent
Institute for Fiscal Studies (IFS).
At a conference of economists Robert Chote, director of the IFS, began by
quoting the Book of Genesis that “seven years of abundance” would be
followed by “seven years of famine”. Brown’s tenure as chancellor had given
the public sector more than seven years of abundance, with record increases
in spending.
Now, said Chote, it would be followed by years of famine, on a scale not seen
since a previous Labour government had been forced by the International
Monetary Fund to slash spending in the 1970s.
With some of the Treasury’s top economists sitting in the audience, the IFS
director went through their own figures. Contrary to Brown’s claims, overall
spending would drop in real terms for three years from 2011, though by only
0.1% a year.
Much of the pain would come from a sharp drop in “capital” spending, on roads,
schools and hospitals. From a peak of £44 billion this year, this would drop
to £22 billion by 2013.
The nub of the debate, however, is what happens to “current” spending on
services. On the face of it Brown can claim there will be a 0.7% annual
real-terms rise during the next parliament. But Chote pointed out that
Brown’s apparent increases quickly turn to cuts when new, unavoidable – and
unwelcome – spending is taken into account. Interest payments on the
government’s huge borrowing will rise 8.4% a year while spending on social
security will go up by an annual 1.7% and other unavoidable elements will
climb 1.9%.
That means, according to the IFS’s calculations, that other departmental
spending will be cut 2.3% a year from 2011, reaching 7% over three years. If
health and overseas aid were maintained, it would mean cuts for other
departments would rise to 9.7% over three years, close to the 10% figure
quoted by Lansley.
It gets worse. Balls has suggested most of his education budget will be
preserved. In that case, according to Chote, the scale of the cuts Labour
would have to make for other departments would rise to 13.5% over three
years.
Chote concedes that these are the IFS’s own calculations, though based on the
Treasury’s own figures. But as he points out, the Treasury has yet to
challenge any of the numbers.
PRIVATELY many cabinet ministers fear Brown is making promises that Labour
cannot deliver – and that voters do not believe. “We need to be realistic
about what we can do,” said one minister. “The public know this is a time
for tightening their own belts and they want government to do the same.”
Derek Scott, Tony Blair’s former economic adviser, voiced ministers’ fears.
“Gor-don is using ridiculous numbers,” said Scott. “His political style is
now being laughed at. These are desperate attempts to create dividing lines.”
Even John McFall, the normally loyal Labour chairman of the Commons treasury
committee, warned that cuts were inevitable. “It is important for a credible
plan to be produced to bring the public finances into balance,” he said.
On Friday night Hilary Benn, the environment secretary, displayed rare candour
in admitting that his own department was facing budget reductions, and there
would have to be “real choices”.
And yesterday Byrne offered a new synthesis of the Labour argument, claiming
that “current” or day-to-day spending would increase, albeit at a slower
rate, but admitted capital spending would fall.
According to one source, Byrne has been involved in running battles with the
prime minister’s advisers as they try to conjure a policy statement that
both satisfies Brown’s need for “dividing lines” with the Tories and
reflects the bleak economic reality. So far no deal has been concluded and
relations between No 10 and the Treasury remain tense.
Among some ministers, however, a cynical view persists that the truth or
falsehood of the party’s position on public spending is irrelevant. All that
counts is that the simple idea that the Tories are “cutters” is communicated
to their core working-class vote.
“We don’t care if the commentators or the economists turn against us,” said
one minister. “This is all about shoring up the base in the northern
heart-lands, which we lost in the European elections. We don’t want or need
them to understand the nuance of the argument. We just want them to hate the
Tories again.”
Tomorrow Brown will attempt to move the debate on with the launch of Building
Britain’s Future, a policy document meant to present ideas for public
service reform.
However, informed sources say it is little more than a string of recycled
announcements and even ministers have their doubts. At a cabinet meeting
last week, after Balls outlined plans to create “chains” of schools run by
new “super-heads”, Baroness Royall, the Labour leader in the Lords, inquired
whether the use of the word “chains” made them sounds a “a little too much
like Aldi and Lidl”.
Meanwhile it is understood that Darling has decided to defer the next
comprehensive spending review until after the next general election. Labour
will sail into the campaign next spring offering no clear breakdown of how
it would spend taxpayers’ money.
Apart from a few eye-catch-ing pledges probably on health and education,
voters will probably still have no better idea about Labour’s true
intentions than they do now.
Weasel words of the PM
Sacking Alistair Darling
- The bluster: Brown was asked in a press conference to admit he had planned
to replace Alistair Darling as chancellor with Ed Balls, the schools
secretary. Brown firmly denied it.
- The reality: high-placed No 10 sources had briefed that the prime minister
wanted to move Darling. The plan was scrapped at the last minute only
because of the resignation of James Purnell, the work and pensions
secretary.
The plot against Blair
- The bluster: in September 2006, Brown went on television to deny any
knowledge of a letter written by plotting MPs designed to force Tony Blair
to retire early.
- The reality: the plot ringleader, Tom Watson, had visited Brown at his
Scottish home just days before the letter was sent, making it hard to
believe Brown was left in the dark.
Boom and bust
- The bluster: asked whether he had been wrong to boast there would be no more
“boom and bust”, he gave this wriggling reply: “I actually said: ‘No more
Tory boom and bust’.”
- The reality: “No more boom and bust” was the slogan used frequently by Brown
from 1997 onwards.
