Cameron May Fail to Realize Spending Cuts, Former Officials Say

Prime Minister David Cameron may fail to achieve his planned spending cuts as he seeks to narrow Britain’s record deficit, two former top civil servants said.

Proposals to reduce spending by 81 billion pounds ($130 billion) a year by 2015 have sparked public opposition and risk resistance from some politicians in Cameron’s Conservative-Liberal Democrat coalition government that took power in May.

“The question that hasn’t been asked is whether it’s going to stick,” Rachel Lomax said at a monetary policy forum organized by Fathom Consulting in London today. John Gieve said it is “most improbable” that the government will stick to its plans.

The comments cast doubt on Chancellor of the Exchequer George Osborne’s ability to cut the deficit to 2 percent of economic output by 2015 from more than 10 percent today. Lomax and Gieve, both former permanent secretaries, have experience of driving through cuts in the 1980s and 1990s. Both also worked at the Treasury and served as deputy governors of the Bank of England.

“It has been a very top-down process and the result leaves me with a sense of wonderment,” Lomax said. “There’s going to be quite a lot of pullback even before you look at welfare.”

Osborne’s plan involves half a million public-sector job losses and 18 billion pounds of welfare cuts, a reduction of almost 9 percent in the total welfare bill.

He and Cameron argue that their austerity program is keeping interest rates low and securing the nation’s top-grade credit rating. Their balancing act is to assure investors they will meet their targets while persuading voters that the cuts are worth the pain.

‘Straw Man’

Lomax said Osborne had set up a “straw man” by comparing the U.K. with Greece and warning that the investors would turn their backs on the nation’s government bonds unless the package was delivered. She said voters do not believe that “there is no alternative,” unlike during previous austerity programs.

The Chartered Institute of Personnel and Development said today that 1.6 million jobs may be lost as a result of the spending cuts and a planned increase in value-added tax in January. Gieve and Lomax said the cuts will hurt growth.

The public sector will lose 725,000 jobs, far higher than the Office for Budget Responsibility’s estimate of 490,000 by April 2015, CIPD said. The private sector will shed 900,000, CIPD said.

It means the private sector needs to create 300,000 jobs a quarter to keep unemployment at its current level of 2.6 million.

That requires the economy to maintain growth of 2.5 percent a year, a rate that may be hard to achieve before 2013, said Chief economic adviser John Philpott. Unemployment may rise through 2011 and much of 2012, he said.

“Plenty of analysts and economists would query whether we’re going to see anything like 2 percent to 3 percent growth on a sustained basis, particularly over the next two years,” Philpott told Parliament’s Treasury Committee in London today.

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