The £30 billion question: What should we cut next?

By Tim Montgomerie
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Last week George Osborne announced that austerity wouldn't end in time for the next election but would continue for at least another two years. This government or its successor is likely to need to find another £30 billion in cuts (although dramatic supply-side reform would reduce this total).

This continuation of austerity may make it harder for the Liberal Democrats to form a pact with Labour in the event of another hung parliament. Andrew Rawnsley, referring to another hung parliament scenario, explained why yesterday:

"The formula that Nick Clegg used during the last election was to say that he would negotiate first with whoever out of Labour or the Tories had won the most support. The way things are evolving, it is increasingly hard to see how he could sustain that line at the next election. Labour's economic strategy – to lift borrowing in the near term in an attempt to boost growth – is the stark opposite of the extended austerity programme to which the Lib Dems have signed up. "If we think Labour's plan going into the next election is fiscally irresponsible, then we will have to say it is fiscally irresponsible," argues one Lib Dem. But if they do so, Mr Clegg is going to have a hard time explaining to interviewers – and voters – that he would be ready to form a coalition with Labour when he has repeatedly called them economically reckless. So another consequence is that the chances of a Lab-Lib coalition after the next election have just grown a bit dimmer."

But I digress from the main point of this post. Even if they share the same fiscal and borrowing targets the two existing Coalition parties can still differentiate themseves by dividing up the spending pie differently (and considering different tax measures).

Nick Clegg has begun to think about these questions and today's Telegraph reports that he wants the elderly to shoulder a bigger share of austerity measures. Although older people with savings are suffering from today's historically low interest rates the Chancellor has actually enhanced many state pension benefits. David Cameron promised to protect universal benefits like the Winter Fuel Payment during the TV debates and Boris Johnson has made similar commitments to the Freedom Pass. The Conservatives have calculated that it's too politically difficult to upset the most informed and active cohort of the electorate. The Tory path to re-election depends upon the grey vote staying solid.

Yesterday Nick Clegg said told Andrew Marr that “we should be asking millionaire pensioners to perhaps make a little sacrifice on their free TV licence or their free bus passes.” He continued: “These are all things where we don’t agree as a government right now, but where those arguments will play out in the years ahead.”

To make a meaningful difference to the public finances Mr Clegg will have to be braver than to target "millionaires" but he's right to look at this question. Some forward-thinking Tory MPs have also done the same (notably Brandon Lewis on concessionary travel) and also some leading think tanks, including the Centre for Social Justice. 

A few brave souls within the Labour Party are also challenging Ed Miliband to get real on the deficit. Labour's former General Secretary Peter Watt joined the "In-The-Black" group to urge his party to think the unthinkable. Without advocating any of these measures he listed some possibles...

"Charging for food in hospital or a fee to see the GP? Greater use of road charging? An end to final salary pension schemes in the public sector? The scrapping of all benefits for people over a certain salary?  Private policing to top up a scaled down state provision?"

Peter's list reminds me of Paul's post on cutting the defence budget. It's not going to be fun is it?

And a PS: Answers to the question at the top of this blog that don't mention international aid and the EU are also welcome.