Osborne spending cuts 'not savage but imperative'

Warnings of savage reductions in the size of the state following next week's spending review are overblown, according to a report today, which described the cuts to be inflicted by Chancellor George Osborne as "a shower, not a hurricane".

Mr Osborne's plans to slash £83 billion from state spending by 2015/16 will do no more than return it to 2009 levels in real terms, argued economics expert Tim Morgan, of brokers Tullett Prebon.

In a pamphlet for the Centre for Policy Studies think-tank, Dr Morgan acknowledged that the spending cuts "will hurt" and jobs will be lost.

But he insisted the cuts envisaged by Mr Osborne are "both modest and essential" and need not make deep inroads into frontline services.

The alternative would be higher borrowing, which could drive interest rates up to dangerous levels; more printing of money, which would risk a surge in inflation in the long run; or higher taxes, which would damage competitiveness, he said.

Any cuts will be made to budgets which are unusually swollen after a decade of "irresponsible excess" under Labour, argued Dr Morgan.

Had state spending risen in line with inflation since 1999-2000's £343 billion, it would have reached £450 billion by 2009/10, he said. Instead, it ballooned by 53% in real terms to £669 billion.

Mr Osborne's proposed cuts are expected to rein in planned budget increases to leave the total state spending at £686 billion at 2010 values by 2015/16 - still higher than it was in 2009 - said Dr Morgan.

Increased outlay on interest payments and the political decision to protect spending on the NHS and international aid means that there will be less money to go around in other Whitehall departments.

But the report calculates that even in these areas, the real-terms fall by 2015/16 is only 7%, from £524 billion to £485 billion in 2010 values.

"This level of cuts is therefore neither excessive, nor 'savage'. But it is imperative," wrote Dr Morgan.

"Proponents and opponents alike have presented the coming spending cuts as draconian, or savage. But in reality the anticipated downpour turns out to be a shower, not a hurricane."

The real risk to the UK economy comes from the driving interest rates up by failing to tackle the deficit, argued Dr Morgan.

"Anyone flirting with rate-risking policies needs to be aware that monthly mortgage payments could rise to unaffordable levels, a process which would simultaneously open up a chasm of negative equity," he said.

"This process could reduce millions of people to penury. This is a real risk, and one that must be avoided.

"Though not painless, spending cuts, particularly if relatively gradual and if concentrated on over-administration, hold far fewer terrors than dicing with interest rates."