George Osborne's cuts call criticised by former cabinet secretary Lord Turnbull

Former head of the civil service tells chancellor at Lords committee hearing that he believes argument for running a surplus is a "smokescreen" for a smaller state

By matt.foster

08 Sep 2015

George Osborne's deficit reduction plans have come under fire from former cabinet secretary Lord Turnbull.

The government has vowed to eradicate the UK's deficit and get public sector net borrowing into surplus by 2019-20, with departments asked to draw up plans for a further £20bn of spending cuts over the parliament in a bid to meet that goal. A £12bn reduction in welfare spending and action to tackle £5bn-worth of tax avoidance will make up the rest of the total.

But the chancellor's rationale for his economic strategy was on Tuesday branded a "smokescreen" for a smaller state by Lord Turnbull, who served as the UK's most senior civil servant from 2002-2005.

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As Osborne faced questions from peers on the Lords Economic Affairs Committee, the former official – who has also served as permanent secretary to the Treasury – said that while he "strongly" backed deficit reduction when a country's debt-to-GDP ratio was rising, he had doubts over the argument behind the chancellor's plans to run a surplus. 

"When you talk about debt you talk about debt as though it were impoverishing the future," Lord Turnbull told Osborne.

"The majority of UK debt is owned by UK citizens, who have an asset. They own the gilts. They pay taxes to you obviously, but then they get interest in return. So the idea that this debt is impoverishing people is, I think, an economic fallacy.

"I think what you're doing actually, your real argument, is you want a smaller state. And there are good arguments and some people would agree with that. But you don't tell people that's what you're doing. What you tell them is a story about impoverishment and debt, which I think is a smokescreen. The whole idea of the urgency and extent of reducing debt? I just can't see a justification for it."

The chancellor strongly disputed Lord Turnbull's argument, saying government had a "responsibility" to prepare the country "for whatever the global economy throws at it".

"If tomorrow the financial crisis were to hit us, we would have a lot less firepower than we would have if our debt was half what it is today as a percentage of our national income," Osborne said.

He added: "This economy has been growing for six years – we're growing at an above-trend growth rate. For the last two years we've been the fastest-growing of the G7 economies.

"If you are comfortable in that situation running a budget deficit, essentially in benign times, when are you ever going to take the difficult decisions required to bring that deficit down?"

"And I would say that running a small surplus, which is what we have set out in the forecast, is what countries like Canada and Sweden – who went through fiscal and banking crises in the last thirty years – have decided works for them. I think we could draw some lessons from that."

The chancellor will set out the results of the Spending Review at the end of November. The deadline for departments to present the Treasury with their initial plans for resource spending cuts of both 25% and 40% passed last week. 

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