How serious is the Government about its fiscal challenge?

There are two big questions on budget day: is the Government serious about achieving the fiscal objectives outlined in its manifesto? And has it got the ability – or rather is it giving itself the ability – to translate those objectives into sustainable action on the ground? We know the Government will be fiscally conservative by any historic standards, looking to pay down the national debt by running a surplus. It is therefore fairly certain that the Budget will set out plans that will achieve a fiscal surplus by 2018/19. It will be interesting to see if the Budget announces tax rises as part of the way the Government is going to achieve the surplus, given that, in one of the sillier pledges in the campaign, the Conservatives announced “declaratory” legislation to prevent increases in parts, but not all, of the tax system. Interesting – but not necessarily surprising, since we know that most government raise taxes immediately after elections pretty much regardless of what has been said in the campaign. But the big test of the Government’s seriousness will come around the promise to cut benefit spending by £12bn. The manifesto commitment, combined with the pledge to exclude the vast majority of the welfare budget (pensions, child benefit, etc), suggest the Government always intended a course of action its predecessors have usually avoided. Governments traditionally cut benefit expenditure through inflation (e.g. freezing the rates), through turnover (cuts for new claimants while existing claimants stay on the old rates) or through reform (e.g. replacing something with a wholly new benefit that happens to cost less). But the scale of the cuts necessary rules out the first option, and as they need to make the saving in 2017/18, timing rules out the latter two. Instead the only way to achieve the cuts is to reduce the benefits currently in payment to groups of people who are a long way from the notion of “benefits scroungers”. We will soon know which way the Government is going on this. I’d be surprised if we don’t see a table setting out £12bn of welfare cuts in the budget, although it is just possible it might be delayed to the Spending Review in the autumn. But the thing to watch for is whether the items in the table are real measures reflected in the overall budget arithmetic, or a collection of “smoke and mirrors” measures designed to justify a soundbite about meeting an election pledge. The fact that the OBR scrutinises benefit changes should allow people to quickly tell the difference. If the Government is serious, then it does not really matter whether the cuts were thought through previously or not (there is a lot of speculation that the cuts were intended as “negotiating capital” for a second coalition). The cuts will be relatively easy to implement – the Government just needs the parliamentary votes and the political capital to see off the protests. It is very different for the cuts to departmental budgets. These need to be thought through over a long period of time. We are bound to hear about using digital technology to run public services more cheaply but also in ways that are easier for the public to access. But to do this, you need skilled people and exceptional governance to prevent the technological promise turning into the bottomless financial pit of a failed IT project. Similarly, we are bound to hear about the power of public service markets to improve performance. But to do this, you need to have proper plans not just to write contracts, but to attract in a range of providers and ensure the market is structured around healthy competition. And it’s important that the Government does not look for soundbites, promising “smoke and mirror” departmental savings that end up costing the taxpayer money. For example, the coalition government rightly criticised the creation of a “bow-wave” in the MoD under Labour, as projects were delayed (but never actually abandoned) to push their big costs into the future, but at the expense of paying somewhat smaller costs to the contractors for the variations. The tax-payer was hit twice – the benefits of the project were delayed and the overall cost of the project increased. Not much of a saving there. There are encouraging signs that the Government realises that it has to invest to ensure Whitehall has the ability to implement reforms properly (though it was less encouraging to see it relying on wheezes and soft targets for in-year savings a few weeks ago. Certainly the new minister for the Cabinet Office, Matt Hancock, is committed to building on the work of his predecessor, France Maude. This will be critical if the government is to succeed in its ambitions.