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In deficit reduction, focus on reforming the state

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Alastair Grant/Reuters

(Read caption) Britain's Prime Minister David Cameron (L) sits next to Deputy Prime Minister, Nick Clegg, in the Cabinet room in 10 Downing Street on June, 8. The new coalition government promises that its approach to trimming the deficit will look significantly different from Margaret Thatcher's.

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According to The Observer: “Nick Clegg has staked his political reputation on a pledge that under the coalition government there will be no return to the savage cuts of the 1980s.” But how savage were those cuts? In fact, were there actually any cuts at all?

The evidence suggests not. In fact, from May 1979 to April 1991, public spending rose from £330bn to £369bn. In real terms, that was an average spending increase of 1% a year. If the coalition government wants to meet its stated aim of eliminating the structural part of the budget deficit over the course of a five-year parliament, they’ll need to do much better than that.

To be fair though, Nick Clegg does not himself talk about ‘the savage cuts of the 1980s’ – those words belong to The Observer. But it does underline the fact that there are many misconceptions about the 1980s, and the extent to which the state was ‘rolled back’. Both the ‘left’ and the ‘right’ tend to exaggerate it.

Clegg’s real argument in the Observer interview is that the coalition government is going to implement cuts in a different way, avoiding confrontations, social divisions, and regional disparities, and generally take the country with them. The idea is to make deficit reduction about more than just ‘cuts’, and to put the focus on reforming the state. That’s a sentiment with which the Adam Smith Institute would heartily concur.

But no one should fool themselves that the necessary reductions in expenditure are going to be easy to implement, or that vested interests are not going to resist them bitterly. The nature Gordon Brown’s client state, under which millions of people are dependent on the taxpayers’ largesse for their pay and position, makes that impossible.

In other words, the deputy prime minister may be right to reject a 1980s approach to deficit reduction. But if the government is to succeed, it will still need to emulate Mrs Thatcher’s singularity of purpose and clarity of vision. I suspect both David Cameron and Nick Clegg know that.

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