Is There Method To The Budget Cut Madness?

If the Chancellor has his way, at least another £25 billion pounds will be cut from the UK budget in his quest to overcome the UK’s deficit and bring it back to a surplus. This isn’t the first time the figure has been bandied around – it has been forecast by a number of other organisations – but this week saw the first time it was specifically mentioned by the Chancellor. In context, he acknowledges that the rate of borrowing is still in the region of £100 billion a year and that interest payments alone amount to half that amount per year.

It might be tempting to say that this hair shirt approach to the state’s finances seems more like the measures you might apply to your own household. Cut back on anything non-essential, and perhaps even on things that are essential but that you can adapt around and see where your remaining budget takes you.

The alternative, and one that would seem at first to be intuitive for governments, would be to try to stimulate growth by investing in infrastructure – in essence spending more money with businesses to help them grow and gain the strength to be confident to pay more to their staff and keep them in work, spreading the money around. This in essence was what was being proposed by Labour at the last election.

The problem is that when we talk about the deficit going down, all we’re doing is talking about reducing the rate at which the national debt grows. The size of the UK’s national debt is running at around six percent of our Gross National Product, and half of the money the government is finding that it needs to borrow is actually merely going towards servicing its own debts. Our deficit remains one of the highest among the so-called rich and developed countries, even as we hear reports of starting to turn the corner and an end to recession.

Having overcome personal debt myself in the last few years, I can join my voice to those who agree that settling for merely servicing debts is not a sustainable way to manage them.  I needed to make harsh decisions – ones that will be familiar to anyone who currently exists at or below the poverty line. What are the cheapest ingredients to buy in bulk? Can I justify having a mobile phone and a land line? Do I skip meals to ensure that my child gets enough to eat?

It’s hard and demoralising and sometimes you just have to plug on every day like a donkey hauling a load of supplies. Eventually it does get better, but there were certainly times where things were very bleak indeed.

Much of the recent reports of financial growth have come from consumer spending on the high street. This does not fill me with joy. If anything I am perturbed to see that the most recent set of figures suggest that households are plunging straight back into further debt to spend more on the high street.

I am minded of the parable of the man who built his house on sand when I look at the current recovery, relying as it does on low interest rates to fuel consumer borrowing. There is a chance that this could solidify if businesses receiving that consumer money were able to start increasing wages faster than  the rate of inflation. It’s a lot of ‘ifs’ and ‘maybes’, but if it pans out, then much as it pains me to acknowledge it then the Chancellor’s approach might just work.