If Osborne cuts £30bn as promised, he can’t achieve his deficit reduction targets

Osborne is now mooting an emergency budget within the next few weeks to lay the foundations for the £30bn fiscal consolidation (aka cuts) to be announced in the autumn spending review. It is made up of £12bn welfare cuts, £13bn reductions in departmental expenditure (aka cuts in public services), and £5bn in tax avoidance measures. What is not immediately apparent is that, if the NHS, schools and overseas aid budgets continue to be ring-fenced, the cutbacks in unprotected and sensitive expenditure like defence and the police will have to be as high as 18%.

The cuts will be at least as large as in the last parliament, though much harder to implement after more obvious cuts have been made, and would bring the cuts to a full third in Whitehall budgets between 2010 and 2020. The Tories will loftily dismiss these difficulties as ‘efficiency savings’, though if that were true they would have been made long before now. So it’s not just that large parts of the ‘Tory programme are uncosted, it’s rather that they will be extremely difficult to implement – indeed so hard that if they were implemented, they would slow down the economy so much that Osborne’s deficit reduction targets will move out of reach. This will produce an extraordinary paradox.

The amount of pain, anguish and impoverishment that will be enforced by this latest round of even bigger cuts will actually achieve little or no reduction in the deficit which is supposed to be the whole objective of the exercise. The deficit is still a whopping £92bn and didn’t reduce at all in this last year because as incomes shrunk, tax receipts were squeezed as well. If now these £30bn cuts are imposed on top of a fast deflating economy in which the growth rate halved in the last quarter to a mere 0.3%, the economy will again grind slowly but steadily to a halt. This is exactly what happened in 2012, which caused Osborne to ease up on austerity in order to kickstart a modicum of growth again, but at the expense of abandoning his promise to eliminate the structural deficit by 2015.

If that’s the Tory plan, then hopefully Labour will not make the same mistake that it made in 2013 when the Institute of Fiscal Studies argued that under Labour plans there need be no cuts in welfare at all and only the smallest reductions in Whitehall spending. Extraordinarily Labour spurned that opportunity in order to display its political machismo by insisting that it would still engage in cutting because it aimed to run a surplus on the current budget. There is no economic rationale for that, and Labour should now starkly contrast the Tory fetish with excessive cutting by highlighting its own programme with minimal or no cuts.