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Deficit cuts: strikes destined for UK streets?

By Channel 4 News

Updated on 08 June 2010

As the government tackles Britain's huge budget deficit Andrew Lilico, chief economist at Policy Exchange analyses for Channel 4 News what is at stake for the coalition if unpopular cuts are implemented.

Public sector workers strike in Spain. The banner reads: No to the cutbacks (Reuters)

Around Europe the significant spending cuts and tax rises governments have announced to address their deficits have been unpopular.

In a number of countries, including Spain at present, they have triggered strikes. In others, such as Greece, there have been marches and riots. Some countries have even seen big rises in support for Communist parties - in Portugal such parties secured 18 per cent of the vote in September 2009.

What can we expect in Britain?

The structural deficit – the bit of the deficit that renewed growth won’t eliminate - is about £120bn. We believe that about £100bn of that should addressed in perhaps four years, with about £80bn of the work being done by spending cuts and £20bn by tax rises.

Because we are coming out of recession, some spending (such as unemployment benefits) will be temporarily elevated, so headline spending needs to fall by perhaps £65bn. Spending in 2010/11 is around £700bn, so spending needs to be cut some 9 to 11 per cent.

The largest spending cuts achieved in any one year in the UK since World War Two were the 4 per cent cuts in 1977 through the IMF programme. These led to a general strike, bodies not being buried, riots, and the German chancellor declaring Britain "no longer a developed country".

The cuts needed on this occasion are between two and three times as large as those of 1977. Strikes and large scale marches therefore appear very likely.

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Whether these degenerate into riots must be a matter of how they are managed by the government. The British police have become very experienced in managing large crowds over the past three decades, but even the small scale anti-capitalist riots of 2009 did not turn out happily.

Classic areas of spending to cut in large cuts programmes are benefits and defence.  However, these will be much more difficult to cut in the UK than in most cuts programmes. 

Though benefits spending is high, that is mainly because too many people receive benefits rather than because benefits levels are over-generous, and it requires a sustained effort over many years to work down numbers of benefits claimants. Defence spending did not rise over the last Parliament – indeed, it is scarcely higher now than it was in 1981 and only marginally up on its 1967 level.

The most straightforward way to cut spending (and arguably the simplest to deliver practically, if not politically) would be to cut spending back most in those areas where spending rose most under Labour.

Rises in health and education alone comprised more than 60 per cent of the rises in departmental spending over the last Parliament. However, the coalition has undertaken to ring-fence health spending from cuts. Our studies of international and historical evidence suggest that, usually, when there are spending cuts, health spending does not fall, but when spending cuts are very large (as in 1977) even health spending is cut.

The message to politicians must be this: There are no easy choices here; no popular way to cut spending on this scale; and probably no way to do so without garnering widespread discontent and opposition.  If you didn’t want to be disliked, you should have got another job.

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