There is now less than a fortnight until the publication of the UK’s Comprehensive Spending Review and the Scottish Government, Northern Ireland Executive and Welsh Assembly Government wait with considerable apprehension to learn of the consequences for our respective budgets.
While we recognise that a credible budget strategy is vital in returning the public finances to a sustainable footing and maintaining the confidence of the wider community including the financial markets, it is essential that we do not put the recovery at risk. We are concerned however that the UK Government’s spending plans may do just that.
The Institute for Fiscal Studies estimates that the spending plans outlined in the June Emergency Budget represent the deepest and most sustained cuts to public services since at least the end of the Second World War. We all believe these cuts are too fast and too deep, consistent with views expressed at the recent Finance Ministers’ Quadrilateral.
The proposals to cut public spending to such an extent run the risk of stalling any recovery. Private sector demand remains fragile and access to finance continues to be constrained. The current plans for fiscal consolidation could therefore have a significant and lasting negative impact on the economy, including people’s jobs, which would undermine the very efforts to address the UK’s fiscal position. We believe that promoting economic growth is the best way to restore the health of our public finances and this must be our overriding priority.
Only when there is clear evidence that the recovery is well established, and can be sustained, should significant fiscal tightening be implemented. Frontloading the cuts into the next two years is entirely the wrong approach for the economy and the vital public services upon which so many people depend. We therefore urge that the spending cuts are scaled back and phased in over a longer time period. Failure to do so runs the risk of doing lasting damage to the economy and the fabric of our public services. This does not preclude the setting out of a clear plan for consolidation which promotes confidence and guarantees financial sustainability but simply that the focus at this stage must be on securing the recovery.
We are particularly concerned about the scale of the cuts planned in capital budgets. Current budget assumptions indicate a cut in capital spending of up to 50% in real terms by 2014/15. Such cuts will be deeply damaging both to jobs and output in the short-term but also to our long-term infrastructure needs and economic prospects.
These are issues of tremendous importance. We have welcomed the general spirit in which the new Coalition Government has approached inter-governmental relations. However, it is essential that this is reinforced by their engagement with the Devolved Administrations over the trajectory of public spending - not just in the conclusions reached over the pace of fiscal consolidation but also, through a willingness to share its thinking in advance of the 20th October, so that we can organise our own budget processes as effectively as possible.
The Devolved Administrations believe that the proposed approach to public spending reductions by the UK Government runs the risk of delivering significant economic and social harm and urge the UK Government to re-consider its proposals.