Monday, 2 August 2010

Transition Costs

In any budget consoldiation there is a the obvious tension between hitting a difficult cuts target ie getting the cuts done and cutting in such a ways as to produce the better long-term results (including on budget pressures) ie cutting carefully.  This appears to be a developing tension in the Cabinet with the new head of the Centre for Social Justice arguing the former is the predominant approach while Cameron complains about those ministers charged with reform  but there is a denial that these tensions have reached the level of a split.

Getting them done, has the advantage of being simpler to achieve.  Although with cuts of this scale simple should be interpreted in context.  Savings can be found in most institutions so the case for total immunity has its flaws.

As for cutting carefully there are a number of impediments. Namely not every policy/spending area will have equally robust data on how it is impacting so the process of comparison is not always fair. It takes time and money to get such data at a time (especially independent and not self-serving data) when there is precious little of either. The Comprehensive Spending Review is to be completed in about 11 weeks time.  There is also the problem that cutting carefully can be used as a cover for simply seeking protection.

Careful cuts will involve reforms. Reforms that will require an increase in spending in the short-term such as IDS's welfare changes i.e. transition costs.  IDS's reforms come with about a £3.5 billion price tag alone.  So to fund those costs you need to cut deeper earlier in the expectation of savings in the medium term. 

International experience is split into both camps so it is of little help on that score but again raises the question of how the process is managed here.

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