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The pace towards the comprehensive spending review, out on October 20, steps up.
Several of the ministers have agreed spending targets for their departments with the Treasury and have joined the so-called Star Chamber, the committee that bashes out the final agreement.
Those of you who did English medieval history may recall that this was the court |of privy counsellors and |judges, set up to bring to heel the most powerful nobles, the ones who could bribe or bully the lesser courts and thereby escape punishment for their crimes. There was no right of appeal, no witnesses, no jury, and the court's proceedings were kept secret.
The present Star Chamber does have a right of appeal, to the full Cabinet, and ministers do have the option of resigning instead of being done for treason. But it adds this further incentive for good behaviour — do a deal quickly and you get a say in what happens to your fellow ministers' departments.
At the moment there is a huge debate about the big numbers of the cuts. It is quite proper to have that debate. I happen to believe that the Coalition has no option but to do pretty much what it is doing, for the dangers of not tackling the deficit swiftly are greater than the dangers of getting on with the job. The Irish experience is cited as showing the dangers of harsh public spending cuts but that seems to me a false analogy for a number of reasons.
One is that in addition to the running fiscal deficit, which is similar to that of the UK, Ireland has these huge debts of the banking system. Much of that money cannot be recovered, whereas the UK is roughly square on its bank investments and will probably exit at a profit. Another is that the Irish economy had not only a larger property bubble but also a much larger construction sector, which collapsed as demand fell. So the peak-to-trough decline was much greater. Third, Ireland is part of the eurozone and so, unlike the UK, has not been able to devalue, and the fall of sterling vis-à-vis the euro has made matters worse, for the UK is a huge export market for Ireland.
But there is one similarity. The business community in Ireland is as worried as the business community in the UK about the scale of indebtedness.
Asked what should be done, business unsurprisingly wanted cuts in public spending. But if the job cannot be done by cuts in spending, business accepts that tax increases may be necessary. UK businesses seem to be less averse to increased taxation than elsewhere.
You might say that businesses always want lower spending, but a lot of them will be hit by it. Certainly they would be on the side of the Coalition and that creates a problem for the Opposition: if it is ever to win power it will have to regain the trust of the business community.
The idea that it is better to cut spending than to raise tax is supported by a report from KPMG. This concludes that deficit recovery strategies based on radical spending cuts tend to be more successful than those centred on tax increases.
But if the Coalition might feel it should take comfort from these findings — it knows, after all, that the recovery will be driven by the business community — it should be aware that when the detail of the cuts becomes clear there will be a lot of disappointment. You can agree with the Government's macro-economic policies but be distressed by the way these are applied.
