Why you need to cut now to cut in 2011

The Prince of Darkness, Peter Mandelson, has been on the news again telling us all how unpatriotic the Conservatives are for comparing our busted economy with that of Greece - an economy so bust that it has been put on suicide watch by the European Central Bank.  Mandelson , of course, would know all about unpatriotic. This comes from a man who, because he wants to hang on to his gold-plated EU pension, must always have a duty of loyalty first to the EU and secondarily to the UK.

The comparison may be not a very precise one but that warning Greece sends to the UK is that there but for the grace of God could go the UK. Greece has now got such large public debt that it has credit rating has been downgraded and the consequences are that interest rates are rocketing. In fact, partly because of the EU, Greece hasbecome a rather expensive holiday option for the Brits.

The real economic argument of the day has been about the timing of the cuts we all believe are necessary. David Cameron and George Osbourne are right to consider we need to make a start now. My reason for that is my experience in cutting in local government is that spending is not like atap. In a business you can turn spending on and off. In Government you can make the decision to reduce spending but it can take many, many months before the savings start to feed through. In part this is due to the size of the bureaucracy you areturning around but it is also due to the very real cyclical budget nature of Government. Local Council set their budgets once a year and it is increasingly difficult to get them to focus on in-year cuts.

So, if Brown really does want to see cuts in 2011 then he needs to start laying out those cuts now if they are to be effective. The key is to cut now because the cuts won'thappen till 2011 anyway.

Related articles by Zemanta

• No early swingeing cuts - Cameron (news.bbc.co.uk)
• U.K. Risks 'Greek-Style' Crisis, Conservatives Say (Update1) (businessweek.com)
• Greece and the rising costs of sovereign bonds (guardian.co.uk)
• Mounting fears over Greek economy (news.bbc.co.uk)