Just before the general election of 2010, Mervyn King reportedly declared the upcoming poll would be 'a good election to lose'
Just a week before the general election of 2010, a striking warning from Mervyn King made its way into the public domain. At a private lunch, it was reported, the Bank of England governor had declared the upcoming poll would be "a good election to lose". "He told me whoever wins this election will be out of power for a whole generation because of how tough the fiscal austerity will have to be," reported Mr King's lunch companion. The implication was clear: the government that took over in May 2010 would have the near-impossible task of sorting out a broken economy and wrecked public finances: a tough, thankless job – but an essential one.
As dust settles on the budget, one inescapable thought is that if 2010 was a good election to lose then so too is 2015. Because George Osborne's fourth red book indicates that Britain's economy has got weaker, not stronger, with the result that the public finance mess is getting bigger. The task that Mr King identified as so vital to carry out this parliament will now drag on until well into the end of this decade.
The Bank governor obviously did not mean to suggest that any political party should actually throw the general election; he was suggesting the difficulty of the victor's task. And yet, as the well-respected Institute for Fiscal Studies pointed out in the post-budget analysis, the scale of the task for the winner of the next election is at least as tough, if not even tougher. Consider this finding: in the first three years of this coalition, spending across government departments was cut by 8.9%. That led to the layoff of hundreds of thousands of public-sector workers, a sharp squeeze on the pay of those still in employment, and in some cases toxic industrial relations between the government and its own civil servants. It also appears to have made some government departments far less effective. As part of its £2bn cuts programme, Revenue and Customs lost 10,000 staff. The result, according to successive reports from the Public Accounts Committee, has been "unacceptable" customer service, "disgraceful" treatment of taxpayers making enquiries, and an inability to deal with tax avoiders – a lack of competence costing £5bn a year. If all that sounds terrible, then consider: on the coalition's current projections, the pace of cuts is set to accelerate after the next election. The cuts will continue all the way to 2018, by which point government departments will be over 18% smaller than they were in 2010. If these cuts are carried out, then what has happened at Revenue and Customs could well be the tip of the iceberg: government departments will be so etiolated it is hard to see how some will be able to carry out their core task.
The reason why these cuts are mounting up is not hard to state: as the economy has failed to pick up, so tax revenues have continued to undershoot and the public debt pile has only grown. This week's budget saw another round of downgraded forecasts for growth and raised predictions for borrowing. George Osborne is now on course to borrow £245bn more than originally planned. What's more, as the IFS pointed out the chancellor's own forecaster, the Office for Budget Responsibility, is now more pessimistic about the underlying strength of the economy. After the banking crash of 2008, the official estimates for the rate at which the UK could sustainably grow were reduced; this week they were reduced further. When Gordon Brown was chancellor, it was assumed that UK GDP could grow 2.75% a year, which was always too optimistic; but now the official assumption is closer to 2.1%.
The next government does not have to make cuts in quite this fashion, as the IFS made clear. It could make gentler cuts all the way till 2020. Or it could tax more, by increasing the range of goods subject to VAT. It could even increase income tax – although that hasn't happened since 1975. But where Westminster once assumed that the economy would be growing strongly by 2015 and the public finances restored, it is now clear that Britain faces quite a few more years of privation.