How austerity economics is being used to reshape the state

The small print of the autumn statement and OBR forecasts shows how the Chancellor is using austerity economics to reshape the state.

Will Hutton in the Observer notes that the OBR states that by 2018, general government consumption will be proportionally no larger than it was in 1948. As he puts it, "The work of three generations in building the sinews of a state that support systems of health, transport, education, environment, policing, science and the rest is to be summarily withdrawn over the next five years. It is a landmark moment in our national life."

The next stage for the ConDems is to legislate that the reduction of the deficit on this scale and speed should be a statutory obligation. Almost all of the work is to be done by cutting spending, by a cumulative £75bn in ways yet to be specified. There is a token measure on tax avoidance that experts say will leave 99% of tax dodging untouched and the super rich are to get a tax cut.

The IMF, after assessing the experience of 107 countries between 1980 and 2012, recommends that, after a credit-crunch deficit, there should be a balance between tax increases and spending reductions. However, Osborne plans more than 95% to come from spending cuts - with incalculable economic and social harm.

The IFS says that public service cuts will average 2.3% a year between 2011 and 2016 - from 2016 to 2019 they are scheduled to be 3.7%. Put another way, so far the ConDems have cut spending on public services by 8%; by 2018-19 this will have become a cut of 20%.

The OBR report strongly implies that the claimed economic recovery is simply a cyclical snapback of the economy driven by a recovery of demand. Duncan Weldon explains the economics of cyclical and structural deficits at the Touchstone blog. Stephen Boyd has put a number of slides on the STUC Better Way blog that gives a realistic view of the Scottish labour market in this context. As Hutton puts it, "This should not be the excuse to shrug off the calamity of irrational total austerity, and hack away at the state with abandon. But sure enough that is what is now promised". 

He goes on to set out the political issues for the Liberal Democrats in particular and the spending consequences for key departments. Hutton also sets out the challenge for Labour who "must be brave enough to set out what kind of state and social settlement they want, and how best to lift the stagnating productivity of British workers, which is at the root of the "cost-of-living crisis". Lib Dems need to ask themselves if they really want to be allies in creating the regressive, punitive civilisation Cameron and Osborne have in mind. Back to 1948? Or onward to something smarter, fairer and more generous? It's decision time."

Indeed it is!