An apologia for austerity

I have a confession to make.  I'm not quite as vitriolic in my opposition to austerity as I am supposed to be, though it is hard to be in favour of anything with a name like that.

In the Lib Dem policy committee, I spoke up for 'thrift' in the run-up to the 2010 election whenever I could (probably why I've been voted off).  So let's remember, now that the new comprehensive spending package is about to be announced, that there remain reasons for tackling the deficit, even for a radical type like myself.

For me, back in 2010, these were the main reasons for backing thrift:

• The international financial markets are indefensible, but - given that they exist - any country that runs too high a deficit (in their estimation) will be punished and find the decisions about what to cut taken out of their hands by international bankers.  It is unconscionable that this could be allowed to happen to us.

• New Labour's public service reforms were not just disastrously expensive (£70 billion on IT alone) but led to even more expense by making the services less effective.  The way to save public services, as I saw it, was to force local institutions to come up with innovative ways of making them effective again - and that meant spending cuts to break about the suffocating central controls.

It so happened back then that the interests of economy and the interests of effective, sustainable public services happened to coincide.  The unravelling of the CQC is some evidence of that half-articulated crisis in services that the last government presided over.

But then there is a problem, isn't there.  Austerity has not actually reduced the deficit.  Osborne has had to borrow about £275 billion more than he meant to since then, and the interest payments ratchet up.

This is partly because neither the NHS nor local government - with some notable exceptions - has really risen to the challenge of re-shaping services so that they are both more effective and less expensive.  It is partly because the old system of regulation has been left virtually intact, and at great expense (CQC is only part of it).  It is also, of course, because you can't cut your way to economic recovery.

There are also limits to austerity, and the agreement to cut an average of £30 million more from the annual budgets of every local authority may begin to unravel civilisation as we know it.

On the other hand, we teeter on the edge of a precipice.  When interest rates start to rise, as they inevitably will, the deficit will become overwhelming.  What then?

Here are three things it seems to me we will have to do pretty soon, and the sooner the better as far as I'm concerned:

1.  Unravel the remains of Labour's centralised public services regime, of which CQC is only the tip of a vast and ineffective iceberg.  If this was anything like its American equivalent, it involved between a fifth and a third of all public service staff to audit the others, at vast expense, corroding the ability of the frontline to innovate.  Give some of the money to the CCGs to run local inspections and abolish the great auditing epidemic.

2.  Merge services locally.  It is inconceivable that we can still afford seven different state agencies to knock on your door when you apply for disability support.  I've written about the future, effective shape of public services elsewhere in this blog.

3.  Create the money interest-free to pay off most of the debt.  It is insane that the money for the national debt should be created by bankers - at great expense to the public purse - and not created by our own central bank, and that between a fifth and a quarter of national income should be diverted to pay the interest.

The first two of these must be done overwhelmingly to make services more effective, so that a minimum number of interventions is necessary - and the investment in troubled families presided over by Danny Alexander is evidence that this is beginning.  If you do it to save money, it will only raise long-term costs, and unfortunately so much of the cuts have been decided on this basis so far.

The last one would be a controversial move, but we have kept the power to do this by staying out of the euro - and if it means averting national disaster, or the corrosion of our civilisation, then I know what I would choose.

This is what I would do if interest rates rose.  I know what Osborne would choose.  I suspect he would carry on cutting, past the point of no return.  But what would Miliband and Balls do, now that they have accepted the spending review and rendered themselves virtually obsolete as an opposition?