Public spending: Battle of the budgets

Question: When is a public spending review not a public spending review? Answer: When it's a public spending round. The problem is that, in Treasuryspeak, there is now no such thing as a public spending round – the old annual "star chamber" battle between the chancellor and the Whitehall departments that was a familiar ministerial ritual of the past. When Gordon Brown became chancellor, riding a tide of economic growth, he scrapped the bloodbath of the annual round in favour of a more strategic two- or three-year spending review . But the three-year cycle is difficult to manage in more volatile times, when forecasts easily go awry. A three-year review was planned in 2009 but was abandoned in the face of the severity of the fiscal crisis and an imminent general election. The Treasury will not admit it, but a new incarnation of the annual spending round is now back with us in all but name. This week, the chief secretary, Liam Byrne, will begin a series of bilaterals with the spending departments, the aim of which is to put substance on the government's spending plans not just for 2010-11 but for future years too. The process would be recognisable to predecessors such as Leon Brittan or John Major, who made their names clipping departmental wings in the Thatcher years. As ever, there will be winners and losers among and within departments. But the immediate aim this time is also highly partisan. It is to allow Alistair Darling the chance to get as specific as possible about Labour's spending plans for next year and for future years in his budget speech next month. For Mr Darling, the chance is to set out post-recession priorities – including cuts as well as safeguarded programmes – in as much detail as practicable, while challenging the opposition to get equally specific about its own priorities, and trying to send a message to voters and financial markets that Labour has the budget and the deficit under control. Deciding what to spend and what to cut is not the only issue dividing the political parties as the election nears. But spending is emerging, quite rightly, as the most important conflict in a party battle dominated by the recession and the financial crisis. What the parties say about spending and cutting – as well as about the taxes that pay for them – tells us about their governmental priorities. But it also speaks to their temperaments and their philosophies. That is why this is such an important, almost three-dimensional, political issue. The economic argument in the upcoming election is increasingly centred on three interlocking issues: how much fiscal tightening each party thinks is necessary, but also how to distribute it between programmes, as well as – crucially – when and for how long to do the tightening. In its "green budget" last week, the Institute for Fiscal Studies called for a more ambitious £70bn programme of tightening to 2015-16, but a more cautious approach to cutting and taxing in 2010-11. Part two of that judgment mirrored Labour's and the Liberal Democrats' sensible caution about safeguarding the fragile recovery, which the Conservatives have now hurriedly embraced too. But the outbreak of collective good sense about 2010-11 must not mean that the parties are allowed to wriggle off the hook of giving clear accounts of what exactly they propose in the following years. The Tories are now reportedly focusing on drawing up real-terms cuts for 2011-12 and beyond. Labour's spending round surely foreshadows something similar for many departments, given the decision to safeguard particular budgets. The IFS forecasts the first five-year period of real cuts since the second world war and the tightest two-year squeeze for the health service in its 60-year life. If that is even broadly accurate, the parties must come clean before the election with some very precise detail of what they really propose. No deception or spin. Just clear, truthful and comparable prospectuses for the very tough times that we now face.