This week saw two Governments take very different strategies to deal with very similar levels of budget deficits (around 12% of national income).

In Ireland the finance minister, Brian Lenihan, announced plenty of painful measures. Cuts in public sector pay and welfare benefits will save around 7% of government spending. Pay cuts range from 5-15%, disability benefit is cut 4% and child benefits by 10%. The positive side of this pain is that taxes are kept down and the budget should be back to a normal 3% deficit by 2014.

In the UK, by contrast, Alistair Darling glossed over the severe cuts that will have to be made. Indeed the extra spending he announced actually exceeded the extra taxation (£15bn more spending and £9bn more tax over the next 2 years according to the independent Institute of Fiscal Studies or IFS). Now there is a good argument to be made that we need to hold off cuts for a while longer, because of the fragile state of the economy. But we also need to make it clear what the strategy is for getting the deficit under control. If we dont the risk is the pound starts to fall as foreign investors lose confidence. If that goes too far, interest rates and inflation start to rise and it all gets very nasty – big cuts then have to be made on the markets timetable, not ours.

As the Lib Dem Treasury spokesman, Vince Cable put it “Alistair Darling should have laid out exactly where cuts would have to be made. Instead he chose to pretend that everything was fine and that he could carry on with tax and spend.” Well he can’t. According to the IFS the Treasury’s forecasts imply cuts in non protected spending areas (all except Education, the NHS and the Police) of 6.9% a year. Thats a 20% cut in real terms between 2011 and 2014. This means some very nasty reductions in services and is the real legacy of the Brown years.

For local government the prospect is grim. Local authorities are already struggling as the impact of the recession cuts income (with huge falls in fees from planning applications as an extreme example) and increases demand for services. In Birmingham this has been made worse by the impact of Single Status on pay costs. This Labour Government measure was hypocritically deferred by Labour when they ran Birmingham (because they knew how much it would cost) and had to be picked up by the Conservative Lib Dem Progressive Partnership. So next year looks tough. Then comes 20% cuts in the three years afterwards.

What do I think we need to do? Well for sure we will have to be ruthless about prioritisation and cut out any fat that remains. I also think there should be no pay rises for any public sector workers (including, naturally Councillors) until the crisis is past. Moreover the highest paid public servants (say over £50,000) should have cuts increasing in size with pay levels, up to 10% for those earning over £100,000. Finally I think even ring-fenced areas need to look for some savings. Its right to protect education, but even in this field some modest savings can be found. 

I strongly believe we need more radical measures like these, to protect services in the long-term. They won’t happen, because Labour’s biggest concern is looking as good as possible until the General Election and that means pretending things are better than they are. Unfortunately for the rest of us, this will only make the whole situation worse from 2011 onwards. And if this weekend’s polls are anything to go by, its very unlikely to help Labour win the election anyway. I just hope they call the election early, so we can get a new Government with a longer term view as soon as possible.