FinancialGuy Writes!

With a European Council summit and the prospect of another eurozone bailout high on the agenda, it seemed fitting that there was a mass rally against UK public sector spending cuts in central London yesterday.

Having written about cuts in my last post ( Public Spending Cuts: How Fast Is Too Fast? ), it seemed time to do some proper research and understand the topic much better.

A few Google searches later, I found myself at this report by Dr Tim Morgan of the Centre for Policy Studies. Don’t fret, the report isn’t long, is fairly readable and seems to be largely free of political bias to my eyes.

Under the heading of “Fallacy #3 – Cuts Are Massive”, Dr Morgan seems to blow many of the complaints out of the water somewhat. In fact, to quote from the report, “By 2014-15, and again expressed at 2009-10 values, aggregate spending will be a modest 3% below the 2009-10 figure, which cannot remotely be described as a “massive” cut. Moreover, spending will remain 48% higher than in 1999-2000.

I am not pretending that there won’t be lots of people that are impacted and lots of public services that change or end, but I didn’t realise that all of this was about 3%. What is worse, now that I see that the reductions are for such a small amount of the total, I wonder whether the coalition is going far enough!

Since there are elements of the budget that will be impacted far less than others (I am thinking of the NHS and science for example) there are some areas that will be hit really hard.

But, looking at the bigger picture, what is ‘The Alternative’? (In case you aren’t aware, the London protest on Saturday was called ‘The Alternative’).

In his address to the rally, Mr Miliband said, “The Tories said I should not come and speak today. But I am proud to stand with you. There is an alternative.

What Is The Alternative?

Bearing in mind that New Labour had public sector spending cuts planned (due to be smaller than the coalition’s, but not by much), it is not easy to see their alternative. I recognise that it is the job of an opposition to oppose, but they do appear to be opposing something that is very similar to their own plans.

What is clear, is that interest rates are historically low, so the cost to carry debt could be much higher than it actually is.

It is also clear that as one of the world’s major currencies, if the UK’s credit rating were to fall from AAA the impact on other governments, organisations and investors that hold our debt would be significant. A large scale sell off in government debt could bring The City (responsible for a good chunk of GDP), the economy and goverment to their knees.

In fact, I fear that the real alternative to the public sector spending cuts that the population faces is a swift and humiliating national bankruptcy. These truly are the horns of a dilemma.

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