The way forward: quantitative easing

The economy is growing faster than expected - 0.8% in the third quarter, from July to September.

Paul Krugman, the Nobel winning economist, argued in the New York Times last week that "premature fiscal austerity will lead to a renewed economic slump." However,this does not seem to be the case: tightening fiscal policy has improved confidence in the economy. The credit agency, Standard & Poor, announced that Britain's AAA status is now "stable." Spending cuts will be a cataylst for a virtuous circle: improved confidence leading to a boost in private consumption and investment. On the other hand, high levels of public spending will only serve to crowd out the private sector.

But as fiscal policy tightens, there needs to be another path to stimulate output. This is where monetary policy comes in. The MPC should expand the money supply through quantitative easing. This will reduce the cost of money. Yes, short term interest rates are already near zero, but long term rates on bonds and mortgages need to be lower. This is the way forward.

Guide to the Comprehensive Spending Review 2010

Why is there a Spending Review?

The Comprehensive Spending Review, lead by Sir Phillip Green, will examine public expenditure from the last three years to try to identify potential savings.

This review essentially aims to reshape and resize the state sector in the economy – but at the same time, maintaining fairness and encouraging economic growth. Even before the recession, the structural budget deficit of the UK was in a dire state. This was exacerbated by the financial crisis – hitting a record £155bn deficit in the 2009-10 financial year. The problem stems from untenable difference between government tax receipts and public expenditure. As more people became unemployed during the recession, revenue from taxes decreased. At the same time, the government had to increase their levels of spending on for example, bailouts and welfare benefits.

Thus, this review has been undertaken to tackle this problem – by cutting government spending.

What has Mr Osbourne announced today?

George Osborne mapped out £81bn of spending cuts over the next four years to reduce the budget deficit. The average cut in departmental budgets is 19%.

The headline saving - £18bn in total from unprecedented cuts in welfare spending. Incapacity benefits are to be reformed – they will become means-tested.

Among the biggest hit was the department of Eric Pickles, the Communities Secretary, whose budget was cut by 68%. However, responsibility for deciding how to make the cuts is being transferred to local councils.

Thousands of prisoners will be released under plans to cut the jail population by 3,000 over the next four years. For example, plans to build a 1,500 inmate jail in Essex have been postponed indefinitely. The Ministry of Justice’s budget is to be cut by 23%, from £8.9bn to £7.3bn.

Health budgets will rise by 0.1% in real terms but plans to expand free prescription entitlements and one-to-one nursing care for cancer patients have been scrapped.

Schools funding has also been partly protected – the rise, after inflation is factored out, amounts to 0.1%. This includes an increase in money intended for children from poor families for free school meals. However, capital spending will be cut by 60%.

The retirement age will move up to 66 by 2020 – millions of workers will have to wait longer to receive their state pension. Nevertheless, pensioners’ winter fuel payments were protected, as were free bus passes and TV licences.

The annual budget for home energy efficiency improvements will fall from £345 millions this year to £100 million in 2012-13. The policing budget is to be cut by a fifth and banks now face a permanent tax levy.

Just too draconian

In July, clashes between the Romas and the police triggered the French government to crackdown on illegal settlements with "Romas as priority" and then to deport them.

There are two problems with this. First, it is an unjustifiable generalisation - the government are stereotyping a whole ethnic group and placing them under one branch. This is a populist, xenophobic measure. If the British government were to round up lawbreakers "with blacks as a priority," there would be a mass uproar. This is exactly what the French government are doing.

Second, it is the wrong way to address the problem. Yes, perhaps, many Romas are involved in crime, prostitution and trafficking - but this is a matter of law and order, not deportation. If they are breaking the law, then just like anyone else in society, the police must deal with it. The approach of the French government is too extreme. Enforcing the law through the police force is a proportionate response that will achieve the same end - making French society a safer place.

Regardless, it is the duty of the French government to look after its fellow EU citizens. Romas in the Bronx in New York are doing so well unlike their European counterparts, who fare the worst on every social index. This is because the American government have helped to educate, and not just shun, the Romas. Education is the long-term, sustainable solution if we are to solve Europe's biggest social problem - and France have a duty to help fulfil that aim.

Instead, Sarkozy has chosen the easy, immoral route that forsakes their moral duty and is too draconian.