Sir Jeremy Heywood: spending cuts will last for 10 years
Britain could be facing a decade of spending cuts, the country’s most senior civil servant said on Wednesday night.
By Christopher Hope, and Bruno Waterfield in Brussels
10:00PM BST 20 Jun 2012
Sir Jeremy Heywood, the Cabinet Secretary, said that work to balance the public finances was only a quarter of the way to completion.
He told civil servants at the Institute for Government: “We are 25 per cent through fiscal adjustment. Spending cuts could last seven, eight, 10 years.”
The Coalition’s cuts started in 2010, so that timetable could see public spending squeezed until 2020.
The Coalition had originally promised to clear the structural deficit, a persistent imbalance between government spending and receipts, in five years, starting in 2010.
Last year, George Osborne, the Chancellor, had to admit that an additional two years of cuts and tax rises would be required, extending the austerity era beyond the next election. Since then, the economy has slipped back into recession, eroding tax revenues and pushing up spending on welfare. Sir Jeremy’s warning suggests that the whole of the next parliament could be dominated by efforts to balance the public finances.
The Cabinet Secretary’s prediction is the first official confirmation of warnings from independent economists that the current cuts programme would not be enough. Earlier this year, the OECD said the Coalition’s current austerity programme would be insufficient to bring the debt down to “prudent” levels. Despite the Coalition’s programme of spending cuts and tax increases, the national debt is to rise from 72 per cent of gross domestic product this year to 76 per cent in 2014-15. Debt will peak at £1.5 trillion in 2016-17.
Sir Jeremy said civil servants were ready for the challenge of more cuts. “They know that they are part of the economy-wide attempt to get the fiscal deficit down, and where weaknesses have been identified, they have got to be addressed,” he said.
Mr Osborne last week blamed the eurozone crisis for stifling the British economic recovery.
There were hopes of a breakthrough in the crisis this week with signs that EU leaders would agree a £600 billion bid to rescue struggling eurozone members.
But the European Commission warned that the plan was merely a “financial paracetamol” and could not heal the single currency’s fundamental troubles. Mr Cameron, meanwhile, spoke of his “frustration” at eurozone leaders’ slow progress on resolving the crisis.
World leaders meeting in Mexico this week discussed a plan to use the EU’s bail-out funds to buy the bonds of struggling eurozone members in an effort to reduce their borrowing costs.
But Angela Merkel, the German Chancellor, on Wednesday night dashed those hopes, insisting there were “no concrete plans” for a bond-buying rescue bid.