When Jack Straw saw television images of the 9/11 attacks on New York and Washington DC in 2001, the then foreign secretary recalls saying to ministers and senior officials: “This changes everything.”
In his memoirs, Straw admits that the remark was “hardly original ... but everything did change that day; 9/11 defined our foreign policy (and much of our home policy) for years after that.”
On Wednesday, 12 days after the atrocities in Paris and five after those in Mali, the chancellor of the exchequer will rise in the House of Commons to deliver his five-year spending review. As in 2001, the threat of international terrorism has changed the context profoundly.
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Whereas before the Paris attacks George Osborne’s challenge was difficult enough – how to slash overall spending by £20bn while at the same softening the impact of tax credit cuts in some kind of U-turn that will help the poorest – now he needs to do far more. The times require that he also show how he will distribute funds to keep the British people safe amid the rising terror threat – and despite austerity. To a large extent Osborne has already boxed himself in. He is committed to finding the additional £20bn of cuts by 2020, in addition to taking £12bn from the welfare budget, and £5bn from cracking down on tax avoidance, in order to balance the books in five years’ time. Furthermore, he has promised to place a cherry on top of the cake at the end of this parliament, in the form of a £10bn surplus.
Up to now the chancellor and prime minister have insisted that economic security, achieved by reining in spending and borrowing, goes hand in hand with national security. It is part of their attack line against Labour leader Jeremy Corbyn, who they say is weak on both. In his speech to the Lord Mayor’s banquet last Monday, David Cameron said: “It is only because we have halved the deficit and made our economy the fastest-growing in the G7 last year that we can maintain the second-best funded armed forces in all of Nato – and together with France, the most capable and globally deployable in Europe. So we will continue to see through our long-term economic plan and take the difficult decisions to deal with our deficit.”
Government spendingBut there are plenty of senior figures in the police and intelligence services – and even now in the Home Office – who would pick holes in that argument after events in Paris. Osborne said on Monday the spending review would boost the number of people in all three UK intelligence agencies who investigate, analyse and help to disrupt terrorist plots. But the Treasury is said to want to impose massive cuts to spending on the police, meaning the loss of more than 20,000 jobs in addition to the 17,000 frontline roles already axed since 2010.
Writing in the Observer today, Sir Ian Blair, the former Metropolitan police commissioner, voices his fears about the effects of more redundancies, particularly among police community support officers. “National security depends on neighbourhood security and the link between the local and the national is about to be badly damaged,” he says. Blair echoes the fears of some of the country’s most senior police officers, who in a leaked report to the government’s crisis response committee, Cobra, said that their ability to respond to a Paris-style attack in London “could not survive the planned cuts”. Blair urges ministers to rethink: “People die in this way. Governments fall. Remember Madrid in 2003 and think again.”
The Home Office is one of several government departments yet to settle on the level of cuts to be unveiled on Wednesday. With large areas of government spending “ringfenced” – overseas aid, defence, and the NHS and schools in England – and with Osborne under pressure from his own backbenchers and the House of Lords to rethink £4.4bn of tax credit cuts, the unprotected departments are looking more vulnerable than ever. Parts of the education budget, including teacher training, are under threat, as is the budget for public health, which lies outside direct NHS spending and so is not protected.
Local authorities, which have had to absorb cuts in government grants of more than 40% since 2010 and are increasingly unable to meet the needs of the elderly for social care, expect more pain. Although NHS spending is protected, with £8bn a year extra promised for the health service by 2020, the chancellor is under pressure to avert a winter disaster by front-loading the money. But with so many competing demands, that becomes more difficult to do by the day.
As he tries to cut budgets and the state while bolstering public safety, Osborne faces two major challenges. The first is to achieve a dignified retreat on tax credit cuts announced in July. These were rounded on by Tory backbenchers – anxious about the more than 3 million families who would lose an average of £1,300 next year – and were rejected by the House of Lords.
The chancellor has stressed that he has “listened” to his opponents, but he still faces the humiliating task of reversing a policy that he clung to tenaciously until it was junked by peers. And that presents a problem: to cancel the planned changes altogether would cost £4.4bn a year, forcing him to raise taxes or find alternative, perhaps equally controversial, cuts elsewhere. Iain Duncan Smith, the secretary of state for work and pensions, is thought to have fought off efforts to raid the budget for universal credit, arguing it would hit the same families in line for cuts in tax credits.
Government non-debt interest spendingYet anything less than a full reversal – phasing in the cuts over five years, for example, to allow the rising “national minimum wage” to offset some families’ losses – would send thinktankers scurrying to calculate how much the average household was still set to lose. Backbenchers are unlikely to feel placated by the prospect of their constituents losing, say, £500 a year instead of £1,300. The second challenge is to exploit some of the wriggle room left in the summer budget, by planning to spend part of the £10bn surplus on the public finances he expects to be running by 2020. But the public finances are notoriously hard to forecast and the latest data, published on Friday, showed that with corporation tax receipts falling short of forecasts, this year’s deficit target of just under £70bn looks hard to achieve. Given how much weight Osborne has placed on the “fiscal charter”, which enshrines the idea of running a budget surplus in normal times, he is unlikely to want to reduce that £10bn margin of error too far.
The overall reduction he wants in government spending is relatively modest in real terms over the next five years, according to the Institute for Fiscal Studies; but this would mean the country had endured a decade in which public spending had barely budged in real terms – something unprecedented in postwar history. Total public spending is forecast to be cut from 39.6% of GDP in 2015–16 to 36.3% by 2019–20, continuing a long-term squeeze on the size of the state. Public spending as a proportion of GDP has only been smaller in two years since the 1970s – 1999-2000 and 2000-01, before the Blair government ramped things up. And it would leave the UK with a drastically diminished public sector, both in historic and international terms. The shadow chancellor, John McDonnell, facing his first big parliamentary test, will stress the economic risks of another five years of austerity.
Ann Pettifor, who sits on McDonnell’s council of economic advisers, contests Osborne’s claim to be shoring up economic or indeed national security, warning that imposing a fresh round of cuts could destroy long-term foundations for growth, undercutting the whole project. “He is risking our national security and our economic security with his fixation on the surplus,” she says. “The cuts are huge, and I think over time it’s going to make everyone feel very concerned – about their health; about things like whether there’s enough street lighting: things which undermine your own personal sense of security. I don’t think people quite realise how dramatic it is.”
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