Spending Review Expert Panel: Mark Littlewood: Osborne is paying the price of getting things wrong in 2010

Mark Littlewood is Director General of the Institute of Economic Affairs. Follow him on Twitter here.

George Osborne paid the price this week for getting things badly wrong in 2010. The initial so-called “Comprehensive” Spending Review when he took office failed to tackle the bloated public sector with sufficient vigour and relied on wildly optimistic growth projections.

The initial ambition of balancing the budget by 2015 has long since been scrapped. The revised target of the middle of the next Parliament looks increasingly optimistic. We may have to wait until this decade is out before the government is able to finally live within its means.

Today, the Chancellor has been reduced to searching for a host of relatively minor savings in order to salvage his deficit reduction strategy. Ominously, £5bn of these savings are to be found through “efficiencies”. Surely, no one doubts that the public sector is littered with gross inefficiencies – but that is not the same as being confident that such inefficiencies can be weeded out through sheer force of will.

If government departments really can make impressive savings on sourcing paperclips more cheaply and using fewer Post It notes, that would be welcome. But for such a drive to essentially account for about half of the announced savings is really rather feeble.

The drive to limit total welfare spending through an overall cap at least shows some imagination – although he has exempted state pensions from this spending envelope, thereby overlooking a huge unfunded liability over the coming decades. Perhaps he should have imposed the cap on overall government expenditure – not merely on certain elements of the welfare budget. That would have marked a more serious move to ensure a prudential approach to spending in years to come.

Most disappointingly of all, the Chancellor has again missed an opportunity to create a climate which encourages and promotes business. Whilst George Osborne’s rhetoric is pro-enterprise and he acknowledges the recovery must be private sector-led, he has once again failed to put forward any concrete policies to make it easier to start or grow a company in Britain.

Indeed, the only real lever he seems to think he has at his disposal to help businesses is for the government to spend money on infrastructure, not to slash red tape and regulation or push harder for lower taxes.

The Chancellor doesn’t seem to either understand or appreciate the need for radical supply side reform and this goes some considerable way to explaining why economic growth figures in recent years have been so crushingly disappointing.

In his defence, George Osborne is having to steer a ship through very choppy waters and he is just about ensuring it doesn’t sink. But he has yet to show he has much idea about how to navigate a route to sunnier climes.