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David Cameron needs to understand the state before he can cut the deficit | Simon Jenkins

Cameron is right: Britain’s deficit must be tackled. But his failure to fully comprehend the public sector could prove costly

I am amazed the cabinet’s collective head does not burst. As massive clouds gather over Europe’s economy, every time it tries to ease the public sector deficit it must run the gauntlet of a dark tunnel, full of people punching, jostling, jeering and screaming. From police to poverty traps, from housing benefit to Hamlet, from submarines to single mothers, the only story in town is “cuts, cuts, cuts”. Every cut draws blood somewhere, and “if it bleeds it leads”. There are no wins, only defeats.

This week the government fixed £26,000 as the upper limit on a family’s welfare payments, and had to do battle with a regiment of peers, unelected by taxpayers, who thought £50,000 might be more generous. It had to fight a Commons report that its NHS reforms were leading to “short-term salami slicing”, apparently worse than any other sort. Ministers quarrelled with the National Audit Office, insisting that its new job-seeker programme was putting 40% of clients in work, not a third. The cost of cutting quangos “doubled” to £830m, implying that the game was not worth the candle. The neglect of defence storage was leading to “a risk of a nuclear accident”, while cuts to the police “jeopardised the Olympics”. It was one bang over the head after another.

Recent speeches by leaders of all parties have indicated a consensus on the need to extricate Britain from recession without incurring further debt. But while they agree this means curbing public spending in general, no one outside government feels under any obligation to suggest cuts in particular.

The ministers whose departments grew most in the past decade are Andrew Lansley at health and Iain Duncan Smith at social services. Neither is planning to cut spending overall, merely to reduce the rate of increase in what are essentially demand-led services. Yet yesterday’s Commons report on NHS reorganisation attacked Lansley for “salami slicing” and “short-termism”, without suggesting where larger chops should be made. Lansley claims that £7bn has already been cut from his target of £20bn by 2015, without loss of quality. Anyone can find a case history with which to ridicule him, but only proper audit can undermine his case.

The bishops pay their vicars less than the proposed family income “poverty threshold” of £26,000, yet they bizarrely want the benefits cap set at double that. While there is a responsibility on the state to help the very poor, the bishops offered no definition of this help or whether any balancing obligation rested with parents. I do not recall any of them a decade ago warning that the borrowing and spending spree could not continue. Now the bubble has burst, to protest at every effort to clean up the mess is intellectually dishonest.

Given Tuesday’s news of impending recession, what is now a Europe-wide search to reduce deficits should clearly be balanced by measures to increase money supply and thus demand. But sooner or later deficits built up in the early 2000s have to be addressed; if this takes place in a climate of hysteria it will hurt the poor more than the rich.

The reason is only partly that poor people are the chief beneficiaries of the state. It is also that within the state sector, the better-off have become more adept at defending their interests. Since recent increases in spending have been skewed to overheads, pain should ideally fall away from the frontline. But the strong always fight hardest, and cuts tend to be a matter of who gets to the lifeboats first.

I bet that in a year we will find those receiving under £15,000 from the public sector have suffered more than those with over £20,000. Last week the defence ministry still thought it good value to give a consultant £1m to sell Harrier jets to the Pentagon, the defence equivalent of giving sweets to children. Lansley’s decentralisation would carry more conviction if he sold his monster palace of bureaucracy in Leeds, giving every hospital trust a share of the proceeds.

In this game of scream and counter-scream the difficulty is the lack of any narrative of a modern state. EF Schumacher’s warnings about the evils of bigness extend beyond the inefficiencies that infect all large organisations. The concept of universal benefits centrally administered wastes money on recipients who do not need them and deprives welfare of local discretion and discipline. Money oozes away and such discretion as exists, as over the social fund, is easy prey to cuts.

The dire recent performances of such giant departments as defence, health and the Home Office show that the British state has bitten off more than it can any longer chew. They lurch from crisis to crisis, and responses become ever cruder. Lansley’s laudable ambition to reduce NHS bureaucracy could have been achieved without yet another blood-drenched reorganisation. Duncan Smith’s attack on welfare dependency – which long defeated his predecessors – should have started with the big-dividend areas of disability and housing, and fought shy of “taking money from the mouths of children”. Change in overcentralised government always throws up high-profile “losers” that make it vulnerable to the charge of timidity or cruelty. Both are rife today.

Thatcherism is still the ruling ideology of Whitehall, but in seeking “public-private partnership” it failed in what should have been its starting point. It knew what the private meant, but lost sight of the public. David Cameron well distinguishes between “society” and the state, but takes his distinction no further. He therefore underestimates the reactionary power of state institutions to guard themselves. However much he may deplore the state, he must define its constitutional rationale. Otherwise he will fight constant battles with it, most of which he will lose.

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