Paul Danon

Although the public approves of spending-cuts, most people think they have significant entitlements. Jamie Whyte (above) in the Telegraph lists: “financial security, decent healthcare, 13 years of education for his children, the support of social workers, subsidised travel, solid housing and a pension when he is old, not to mention the protection of the military and the justice system.” (Folk who have been impressed by Mr Balls’ offer to cut £2 billion from education need to know that that’s just 2½% of the annual total.)

Of course, as Mr Whyte says, the other way for government to pay its debts is by taxing people. The trouble with that is that, once taxes reach a certain level, they raise less money rather than more. He says: “I suspect that more debt would be repaid if the government lowered tax rates. Alas, in the current political environment, that … is very unlikely.” So the politicians are scared of:

• cutting spending
• raising taxes.

What can they do with all the debt? A tempting alternative is to inflate the currency so that the money owed is worth less.

The world is no less dangerous. The middle east is by no means cleared-up, North Korea and Iran continue to menace and the west seems to be losing in Afghanistan. Meanwhile, British Conservatives speak of defence-cuts, Obama cuts Star Wars and the Chinese flaunt their firepower.

The LibDem spat about university-fees is instructive. The leader has the courage to say that cuts must be deep. His colleagues object on grounds of principle - commitments to free college-education. He’s said to be on the right of his party. Might he be a true liberal?

Most people see that public spending cuts are necessary. They prefer them to tax-rises. Next, the politicians at their party-conferences will have to do an elaborate dance. They will have to show that they are prepared to cut yet reassure the electorate that such cuts will be painless, particularly to voters in swing-seats. Parties also need to show that they differ from their competitors and that they simultaneously stand for principle and pragmatism.

Network Rail’s proposal for Britain’s second high-speed railway was timid, leaving major cities on branch-lines and completely avoiding Yorkshire and Tyneside. Along comes greengauge with something a bit meatier (though do they have the money for it?). It’s basically WCML mark II plus ECML mark II. Happily, though, it brings in Birmingham and Sheffield from the cold while leaving Manchester out on a limb.

London Underground has dumped the river from its map because it says it clutters it. What it should take off the map is the orange Overground network. Far from being part of a metro, these lines are run with old-style British Rail timetables. Daytime frequency on the Gospel Oak/Barking line is 30 minutes. Only when the Overground is run on turn-up-and-go principles should it be on the tube map.

A year after Lehman, the govt. comes out of denial about public spending. Nick Robinson proves Mandelson wrong on live radio. The shadow-chancellor calls the PM a liar and the latter, so far, does not demur. A centre-left culture-secretary attacks the BBC over regulation and the licence-fee. Is this a sea-change? Is the political world waking up, admittedly hung-over, after its binge of public spending and expenses-fiddling? Might the cards be about to be laid on the table and true political debate begin? Could Labour and the Conservatives together confront those who, like the TUC and Ms Toynbee, oppose cutting? And (while I’m putting rhetorical questions) what would the IMF do with Britain if it got its hands on it? It wants Serbia to cut a fifth of government jobs.

• Guardian writer suggests 5% cuts all ’round.

Politicians are squeamish about when to start cutting public spending. Of course, some are just nervous about the election. Economically, though, the answer must be yesterday, though ideally sooner. As the British private sector has shed the best part of 0.9 million jobs, the public sector has created the best part of 0.3 milli0n. Both trends are in the wrong direction - as if we actually needed more government and less productive enterprise!

Sadly, too many, including Tories, still think that governments create wealth rather than dissipating it. They can’t have heard of Friedman’s law on government inefficiency yet its proof is all around us. Just try to get healed, educated, transported or protected. If government were a business, it would soon be out of business. Would you buy shares in this government? If you’re a UK taxpayer, you sadly already have. Compare the service you get at Marks & Spencer with your children’s school which (like London buses) shuts when it snows.

Imagine that the Titanic could have somehow steamed to safety by closing its library and ballroom and diverting the spare power to the engines. We’re like that now, yet we keep playing string-quartets on the poop-deck supposedly to keep up morale. The logical conclusion would be for the government to employ everyone which, in a total collapse, I suppose it does. Trouble is, it can only then pay us in inflated money and untradeable gilts.

Look. You’re sick. The sooner we operate the better. I know you’re frightened of knives but we shall have to make the incision sooner or later. The alternative (non-intervention) is far, far worse. The alternative is economic gangrene and civil disorder. We could still act.

• Cuts would be worth it for public relations alone - just to impress gilt-buyers, Standard and Poor’s, Moody’s and the IMF.

This recovery has been engineered by the government’s borrowing and printing money. The printing has now stopped and Britain’s credit-card is maxed-out. Mr Field explains that government-gilts must now compete in the market without Bank of England help. Some 40 gilt-auctions are due before the election and the UK seeks to raise the highest proportion of GDP among the G8. Our credit-rating has been in jeopardy. Mr Field writes: “For the gilt market to [go on] strike and not to buy future debt will have catastrophic economic and political consequences here.” Mr Field is no hysterical rabble-rouser. He commands respect throughout parliament. Yet he sees fit to warn of catastrophe.

• unemployment up
• Labour has spent £3 trillion.

A year after Lehman’s demise, the government finally comes out of denial and admits it will cut its profligate spending. (Meanwhile, Dr Cable would cut just 2.4% of annual spending.) Labour’s cuts seem predicated on an imminent recovery, and the bank says the recession is over. Time will tell.

Meanwhile, Dr Pirie urges cuts bigtime, quoting the eurobank as having identified almost £0.1 trillion that could be saved merely by efficiencies (i.e. with no diminution of actual services). He says: “we must ask which services currently provided by government could be better done outside it, and which should not be done at all.”

Given the grave nature of our debt (with so much off the balance-sheet), let’s bluesky a bit. Looking at the piechart above, the prime target for cutting must be social security. At least some of that will be benefits you get whether you need them or not. Let’s abolish it all and have a single, means-tested benefits-system delivered through everyone’s tax-account. That same system could pick-up the bills for healthcare for folks who couldn’t afford it and the NHS could be sold. And let parents pay the cost of education. The state has no duty to provide it and the private sector can do it better (like health).

As you abolish social security, also abolish the dole, national insurance and council-tax. While you’re at it, get rid of various duties, the TV-licence (sell the BBC), car-tax and inheritance-tax. Slap a single-rate purchase-tax on everything and keep income-tax single-rate, low and simple to run. Renege on public sector pensions; poor ex-civil servants will be looked after through their tax-accounts.

The state may help pay for your education, health or housing, but it won’t own your school, hospital or home. In Whitehall and the town hall, you can close departments to do with work, pensions, industry, employment, environment, local government, education, training, health, transport, business, farming, culture, media and sport. You will need defence, diplomacy, justice, a home department and a treasury, but not much else. Political parties can then fight elections on how much of a hit people will take taxwise in return for a particular level of benefit. Delivery will then be through the market and the principal choices will then be ours.