Former Tory Chancellors warn of the need for spending cuts

Today's Guardian carries details of an Institute for Fiscal Studies report which suggests that after the general election we will see the "tightest constraint in public service spending since 1977".

The paper suggests:

"Britain will face spending cuts of more than 16% to key public services, such as law and order and higher education, if Labour and the Tories deliver on their goals to protect schools, hospitals and defence".

Defence ,of course, is a moot point, since the Conservatives have not in fact promised to protect that area of spending (although it is the area which most parliamentary candidates want to see protected).

But the paper goes on to carry advice from several former Tory Chancellors:

Nigel Lawson, who has been advising the shadow chancellor, George Osborne, urged the Tories to introduce an emergency budget within 40 days of coming to power, to outline swingeing cuts. "The public finances are in a terrible mess," Lawson said. "How much you do on the public expenditure side and how much you do by raising taxation, different people will have different views about it. My opinion is you need to do it very substantially on the public expenditure side."

Geoffrey Howe said: "The situation is even more difficult than it was [in 1979] because of the scale of the debt. That is the essential thing. But it is less difficult because there is not inflation. The general shape is pretty forbidding. It is not a question of whether there will be public spending cuts. Public spending has got to be restrained if you are going to address the debt problem." But Howe believes that Britain is not quite yet in the "last chance saloon" – his famous description of the country's plight during 1979. "It is different now," he said. "We are pretty much the next thing. It has not built up in the same way as it did. From 1970 on, government after government had been tackling the same agenda and had been defeated. It isn't anything like it really as it was then. There was a widespread sense of unease that it was overtaking us."

Norman Lamont, chancellor between 1990 and 1993, believes that Britain is heading for a "pretty unpleasant" experience as it deals with a recession that dwarfs the one he had to handle in the early 1990s. "This recession is a lot worse than the 90s. The drop in GDP in the first quarter of this year was almost as great as the entire recession of the 1990s." Lamont believes people are making a mistake if they think they will escape lightly, on grounds that interest rates are lower in this recession. He said: "Interest rates have come down, the exchange rate has come down in this recession, and so people have felt …ah, things are easing, things will get better. I am afraid that could be a bit of an illusion. The effectiveness of interest rates will possibly be slower and longer than in previous recessions because this is a more organic, a more cyclical, recession. It is the result of accumulated debt and so it has to be worked off." Spending cuts will be grim as the next government deals with the "horrendous" public finances. "I think it will feel painful everywhere," he added.

The case for honesty about the need for spending cuts is also made in today's Telegraph by Andrew Haldenby of Reform.

Meanwhile, a report in the same paper quotes Tory sources as saying that a Conservative Government would not expect to be able to abolish the 50p tax rate until "the back end of their first term".

Jonathan Isaby