British government cuts modest and unimpressive

Finally it's out.  The Report of the comprehensive Spending Review was released by Chancellor George Osborne, and the result?  Well it's a bit mixed.

The real effect is to cut government spending to levels seen in 2007.  Hardly radical.

The cuts are spread over the next five years and are a £83 billion reduction compared to the Gordon Brown budget.  What does that mean?  Well it is actually only a £28 billion reduction in real terms (taking into account inflation).  From a total budget of £697 billion, it is a reduction of only 4%!  In nominal terms it is a £41 billion increase in spending.  In effect the increase in nominal spending has been cut by two-third.   Brutal cut?  I think not.

So the wailing and gnashing of teeth by the statists of the left is unjustified.   In this period, spending on interest on debt (in other words the price of the past decade of overspending by Gordon Brown) climbs 46% (nominally) to £63 billion per annum by 2015.   9% of all government spending in 2015 being just the interest on servicing debt.  That's more than the total education budget (but deficit spending is caring didn't you know?).

The welfare state isn't being decimated either.  The estimate is that total spending will be increasing in nominal terms from £194 billion today to £214 billion by 2015.  That's over £3,500 for every adult and child in the UK! 

The lie is that it is about hitting the poor.  It is actually mostly about hitting civil service bureaucracy, with 500,000 "jobs" being scrapped over 5 years.

So what is good?

- The appalling "Department of Business, Innovation and Skills" gets a 30% cut in real terms over 5 years, primarily by ending its funding for universities (universities being free to set fees from students to make up the difference).  It also loses £400 million in administration.  Its government science funding is frozen.   Government university funding is not solely from this source, but this is a wholesale shift from predominantly state funding to predominantly student funding.   This is a worthwhile step.

What is tolerable?

- Welfare spending only gets a slowing of growth.  A single benefit is to be created, means tested, staggered to encourage work over welfare and to be cut for those with savings over £16,000.   Already announced cuts to abolish child benefits for those on the top 15% of incomes, and capping total welfare anyone can claim to the average wage.  The pension age drips up to 66 by 2020, hardly radical.  Yet child benefit will still be spent on children until age 19.  Increases in winter fuel allowances will be made permanent and remain for people on all incomes.  Free bus passes and TV licences for the elderly remain.  Pension increases will be linked to the highest of inflation, wages or 2.5%!  In short, welfare is being tinkered with, but the welfare state remains big and strong.  

- The Department for Communities and Local Government gets a 7% cut in real terms over 5 years.  The big saving is in council housing.  New council housing tenants will face rents of up to 80% of market levels, but existing council housing tenants face no change in rental conditions.   It will stem demand for council housing, but is intended to subsidise construction of 150,000 more state owned homes over four years.  So the role in housing isn't being cut back much  Council tax is frozen for a year, because the state will be subsidising it! Funding for "social care" (essentially care homes and support for the elderly) gets a £1 billion increase over 4 years.  Not much excitement here.

- The Department of Education and Skills gets a 11% cut in real terms over 5 years.   This involves a one-third cut in administration, 60% cut in capital budget and abolition of quangos.  The £30 a week bribe to teenagers to stay at college after 16 is being scrapped in favour of targeted bribes.  However a "pupil premium" will be increased to subsidise poor children to go to better schools.  Teaching salaries and expenditure wont be seriously affected.  Education largely holds its own outside the tertiary sector.

- The Department of Environment, Food and Rural Affairs gets a £700 million cut over 5 years, from a one third cut in administration, two thirds of its quangos are to be abolished, with cuts in funding for nature reserves, flood defences and biosecurity (all of which will have to fund themselves more).  

- The Home Office gets a 27% cut in real terms over 5 years.  This means a 20% cut in funding of local police forces from central government (although the locally funded share means the effect is less dramatic).  The UK Border Agency gets a 20% cut in real terms (which either means more efficiency, longer queues at Heathrow or less control of illegal immigrants or all of the above!).  Home Office civil servants spending are cut by one third.   The capital budget is cut by 49%.  Why tolerable?  Because it continues to fail to confront real crime to tackle the social disaster of parts of the country that are controlled by yobs.   The Home Office is a bloated centre of ever increasing control

What is disappointing?

- The Ministry of Defence faces a 5% cut in real terms in five years, but its story is deserving of the cliche "travesty".   Reconnaissance aircraft (Nimrods) will not be replaced, the Harrier and Tornado fleets will be scrapped early.  All three forces will lose soldiers, sailors and aircrew, but more welcome is the cut in 25,000 civilian personnel.  Tanks, ships and artillery are being scrapped.  The Ark Royal aircraft carrier is scrapped, and one of the two new aircraft carriers (being built which are more expensive to cancel than build) will be mothballed within three years.   Aircraft carriers wont have any British aircraft to operate on them after the Harriers are scrapped, until 2020 if the Joint Strike Fighters proceed.  The replacement for the Trident submarine based nuclear deterrent is deferred until after the next election.  The short of it is that the UK could not repeat the Falklands conflict if it needed to, and could not match the commitment it had originally for Iraq or Afghanistan.   The UK is stepping back from its ability to project military power.   What is particularly frustrating is to have unfunded aircraft carriers ordered without aircraft able to use them.  The MoD screwed up, the Brown government didn't spot it, and so one reaps the rewards of a state focused not on its core, but on too many issues at once.

- The Department of Energy and Climate Change (which frankly could be closed) will have a 5% per annum cut over 5 years.  Why disappointing?  Well it includes a "Green Investment Bank" worth £1 billion to fund gold-plated energy projects like offshore wind farms, £1 billion to fund carbon capture and storage, £200 million to fund low carbon electricity.  The Nuclear Decommissioning Authority gets an increase in budget, to support the policy of allowing new nuclear power plants.  People will get subsidies for generating their own electricity in environmentally friendly ways.  Grants for insulating homes get cut 63%.  

- Health was always not to be really affected.  Given estimates of inflation, it will face a 1% cut in real terms, but the NHS itself gets a 0.5% real increase.  As it had a 50% increase in funding in real terms over the period of the last government, this is hardly going to hurt.   More is to be spent on social care, cancer drugs, three new hospitals are to be built.  Administration is to be cut by a third, with eight health quangos abolished.  10 health authorities and 150 primary care trusts are to be abolished. With £109.4 billion spending this year, this is an area where scope for efficiencies would be enormous, and to ration demand for a system that is "free at the point of use" (generating waste from appointments not kept and the worried well).  One curiosity is abolition of a £75 million programme to promote healthy eating and drinking.   The world's biggest health bureaucracy continues.

- The Department for International Development means foreign aid. It is being increased by 43% in nominal terms over five years.  Administration cost are to be cut by 50% and foreign aid to Russia and China terminated, but this increase helps fund bilateral aid, the UN, the EU and other multilateral agencies.   By 2013 0.7% of the UK's GNP will be spent on state foreign aid, a UN target.  A transfer from the middle class of the UK to the upper classes of the third world.  

- Ministry of Justice is cut by 26% in real terms over 5 years.  Why disappointing? Because it effectively means cutting spending on prisons without a commensurate abolition of victimless crimes.  Less prison places, court closures and reductions in legal aid.  Without a comprehensive strategy to focus law and order on real crime, there is every risk that this results in the public being less safe.  Again, a core role of the state being distracted by everything else.  The potential is there for this to be positive, but there is little sign of this.

- Department for Transport is cut by 13%, but spending on grand rail projects like Crossrail remains, and the road budget is being used for some high value projects (but still remains hopefully inadequate compared to the revenue collected from road users).  Rail remains addicted to the state tit, and there are few signs of moving roads to the private sector.  

So let's not get excited.   Government spending is being sent in the right direction, but not by much.  The welfare state, health and education largely get unaffected (with university spending being hit the most), everything else is more about tweaking spending and cutting much bureaucracy.  On the downside, the core roles of defence, police and justice are hit significantly, but it is unclear whether this has long run effects on Britain's military capability and whether law and order will be seriously affected.

So no, it isn't the catastrophe the state addicted left will claim, and it is hardly enough to get a libertarian excited.  Keep calm and carry on.

What can undo the Tea Party in the US?

When the positive push for less government gets tainted and polluted by idiots like this.

Let's be clear, the Tea Party movement has core values and principles that are undoubtedly libertarian and pro-freedom.  In and of itself it promotes small government, free markets and fiscal responsibility.    The fact that some Republicans have actually taken it upon themselves to embrace what are the core values and principles of the United States of America is positive.   It is frightening the silver spoon socialists like Nancy Pelosi, who hasn't seen a problem she didn't want the government to fix.

It has perplexed President Obama who is astonished that only two years after he won off the back of a euphoria of incredibly vacuousness ("change" I'll give you "change") he isn't getting "credit" for introducing compulsory health insurance, bailing out failed banks and automotive manufacturers and spending billions of dollars that are not being raised in taxes.

The Democrats are lost between being amazed that so many Americans are embracing the small government message, disappointed that Barack Obama has not parted the sea, healed the sick, rebuilt the economy and "changed" everything for the better, so have resorted to accusing the Tea Party Movement of racism (the cheap instant slur thrown about with such abandon that it demeans those who fought true racism).

So it is an opportunity, yet it is one that is so readily squandered in the hands of Christian conservatives who seek to use the state to promote or enforce their own beliefs.

There is no majority in the United States of Christians who want the Federal Government to promote religion in schools, to regulate behaviour between consenting adults or restrict freedom of speech.   Indeed those like O'Connell who dare to question whether the United States is a secular liberal democracy will do far more damage to the Tea Party Movement than anything else.

For the "wingnut" religious right in the US will vote Republican in any case, but by associating the Tea Party Movement with religion it alienates swinging voters who find religious fundamentalism distasteful, but who agree with small government, free markets and fiscal responsibility.

Yes some imbecilic parents want their children to be taught that the pseudo-science of creationism is "as valid" scientifically as evolution.  The appropriate answer to that is to privatise education, so that schools can set themselves up as they wish and teach as they wish, so the state is not involved.   The answer is not to confuse beliefs in the supernatural with the state.

It is why the likes of Sarah Palin can not be the Presidential candidate for the Republicans in 2012.  She does not consistently believe in small government (she believes in the war on drugs for starters,and she has lobbied for earmarked pork funding from the Federal Government for Alaska) and she cannot help but get tied up in linking religion to public policy (by claiming war in Iraq was part of "god's plan").  

The Tea Party can be a great force for good, but it will be undone only by two types of people, the religious right who want it to be a proxy for an agenda that is anything BUT about reducing the size the government, (and so frightening off moderate Christians, and non-Christians to the Democrats or not voting at all) and (more likely) the sleazy, pork barrel carrying, power hungry statists who have dominated the Republican Party for decades.

Sarah Palin is in both camps, she finds it difficult to separate her religion from her publicly expressed political views and has also shown herself to be part of the establishment (as well as being far from bright).

I am wishing the Tea Party the very best in the mid-terms, if only because it will send a message to the Republican Party, and because the Democrats will have no way of confronting it other than attack (how can they embrace a movement that runs contrary to all they say and do).  However, it cannot and should not be a hostage to imbecility or those for whom the phrase "Christian theocracy" doesn't send chills down their spines.

Spending cuts do not take money out of the economy

It's so abundantly simple that it shouldn't need explaining, but the Adam Smith Institute hasn't done a bad job:

"The error is in seeing the government as being external to the economy, with spending coming as manna from heaven. In fact, government money does not come from nowhere – barring simply printing money to pay for spending (which obviously does not increase actual wealth), government spending money can either come from taxes or borrowing."

Anyone can see that taking it from taxes is a transfer from the private sector to the state, and simple redistribution.  If this generated wealth, then North Korea would be beating South Korea.

How about borrowing though? Surely that's bringing money in?

"Government borrowing comes from private savings, crowding out private borrowers like entrepreneurs and investors. By diverting money away from businesses and entrepreneurs, who can use it to create commercially-valuable projects, wealth is squandered on projects that are unproductive such that only a government. If they were productive, why would it be necessary to tax people to pay for them in the first place?"

 

Now some make the argument that governments can make productive investment, in certain infrastructure where the private sector is prohibited or crowded out.  This can be true if the projects selected are high value, but this is only a second best option and only reflects the failure to allow market signals to incentivise the private sector to enter such markets (the best example is with roads).   

Yet neither in the UK, nor in the US (nor New Zealand) is such deficit spending about roads, it is about consumption.

This is why eliminating deficit spending is positive for economies.   It gets the government out of competing with private businesses for borrowing (of all sizes), so it reduces the cost of borrowing.  As government debt is typically seen as one of the safest "investments" (nothing like lending to someone who can extract repayment by force from its subjects), reducing the supply of such debt will induce financial institutions to look elsewhere for returns.

After all, Japan has been deficit spending now for over a decade, and the results have remained lacklustre. 

Keep calm, the cuts are going to be pitiful

A "reckless gamble" says the Shadow Chancellor. The Marxist Trade Union Congress says the cuts will be "huge".

The full details will be announced in two days time, but we already know how much the total value will be as the Emergency Budget foreshadowed the amount earlier this year.

The Adam Smith Institute has analysed what was forecast, although it has forecast inflation being 2-3% (when it is closer to 5%) and the overall cuts will be only 4.2% over five years.

Even the Guardian's handy public spending guide demonstrates that after the forecast cuts, the size of the British state as a proportion of GDP will be about the same as when the Atlee Labour Government lost power (after creating the NHS). It will not be the lowest since WW2, which was shared by the mid 1950s under Eden and the late 90s under Blair (the first term of which was characterised by fiscal restraint). 

So let's not get excited.  Schools wont close down, hospitals wont close, nobody is going to starve, the only people who will get less welfare are those on middle to higher incomes and precious little of the state sector is getting cut back.    

The only reason noise is being made is because so many have been enjoying the growth of the state tit in the past decade that they find it hard to accept that the money to keep this up simply does not exist.

Labour's land policy can be extended

Labour Leader Phil Goff today announced that given the warm reception of his policy against foreign own land and businesses that he would apply the principle more generally.

“Given that foreign investors can often have a pernicious, non-Kiwi way of looking at land and infrastructure operations, we understand that only the Tangata Whenua, meaning not only Maori but non-Maori Kiwi blokes and blokesses know how to treat land as more than an investment, but a link to the nation and the people. This link isn’t just across Aotearoa but is local too, so I have decided to announce that Labour will restrict sales of South Island land to South Islanders only.

For many years now more and more farms, businesses and infrastructure in the South Island has been owned predominantly or exclusively by North Island companies and individuals. These people do not have a direct link with the land, and are less likely to appreciate the cultural, economic, social and environmental sensitivities involved. The Queen Street Farmer with properties in Otago must come to an end.

The inflation in prices that this allows has been rampant, so I will institute a policy that such sales will only be allowed if they are in the interests of South Islanders.

Given the wisdom of this approach, I intend to empower local authorities to institute similar such rules, so that the people of Hamilton do not face Aucklanders buying up properties and shutting them out of the market. Similarly, the overpriced Kapiti housing market will be set free by keeping Wellingtonians out.”

He continued:

“There are big North Island buyers with money to burn who want to control and own the supply chain for food production. Instead of adding value to production in the South Island, they could decide to do it in the North Island.

That would cost the South Island jobs.

They’re going from the North to the South Island to buy what’s currently South Islanders’ and they will be doing it more often.

South Islanders are more vulnerable as land values fall.

We are at risk of our land being priced on a national market beyond the reach of South Islanders.

When South Islanders have to compete against North Island buyers, we have to ask ourselves - what will happen if the prices paid lock us out of owning our own land?
Where does it end up if we say to ambitious young South Islanders that you can only buy into our best and productive assets if you come from the North Island or you are born into a wealthy family.

That is not the South Island I want.

No North Islander has the right to buy South Island land - it is a privilege.
It is a privilege we have granted too easily.

Today you have my commitment that Labour will turn the rules on selling land to across Cook Strait on their head.

We’ll guarantee that South Islanders’ interests are put first.

We will reverse the presumption that any North Island purchase of South Island rural land is good for South Islanders.”

He continued to explain that he would be consulting on whether to first restrict inter-electorate sales of land ("can't have those Cantabrians buying West Coast land willy nilly can we?") or inter local authority sales ("Carterton for Cartertonians"!), noting that local authorities themselves may decide to impose more local restrictions if need be.

"Parnell for Parnellians, Miramar for Miramaranians, Taradale for Taradalians" he could be heard banally crying out.

He noted finally that this policy was in alignment with the great philosophy of self-reliance of Juche, adopted from Pyongyang.