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A recent Daily Telegraph editorial argues that cutting public spending must become the central issue in British politics. National debt is estimated to have passed £3 trillion. The cost of long-term borrowing has risen sharply, while debt interest consumes money that can no longer be spent on defence, healthcare or other public services.

The newspaper welcomes Reform UK’s proposal to reduce annual government spending by £80 billion. It also approves of Conservative plans to restrain welfare spending while increasing defence expenditure. Its conclusion is that the British state is consuming ever more resources while delivering increasingly disappointing results.

The financial warning is justified. The Office for Budget Responsibility has acknowledged that debt-interest spending has reached post-war records as a proportion of both government revenue and national output. It has also become exceptionally volatile. Higher interest rates can therefore upset the public finances very quickly. The original Telegraph editorial can be read here.

However, the political debate still avoids the more fundamental question. What if economic growth cannot simply be “unleashed”?

The assumption that growth will return

The conventional argument is that government should cut spending, reduce taxes, remove regulations and allow the private economy to grow. Economic growth would then raise tax revenues and make the remaining public services affordable.

This assumes that the underlying productive economy is merely being restrained by bad government. Remove the restraints and expansion will resume.

But Britain may be facing something much deeper than poor economic management. The industrial economy depends upon abundant and affordable energy, raw materials, transport, infrastructure and credit. As these become more expensive, a growing proportion of economic activity must be devoted simply to maintaining existing systems.

The economy may continue to appear to grow in money terms while producing less real prosperity. Government borrowing can disguise this for a time. So can rising house prices, financial speculation and expanding public expenditure. None of them creates the affordable energy or physical resources upon which productive activity ultimately depends.

If the economy is shrinking structurally, no government will be able to restore the growth rates upon which its promises are based.

Spending cuts will come anyway

In that case, public spending will eventually be reduced. The choice is not necessarily between spending cuts and continued abundance. It may be between planned adaptation and disorderly contraction.

When government borrows to maintain services that current taxation can no longer support, it transfers part of the cost into the future. Interest then becomes another permanent claim upon future taxpayers. Eventually, lenders demand higher returns because they see that the state’s commitments are growing faster than its ability to pay.

The bond market is therefore not merely expressing a political preference for a smaller state. It is exposing an affordability problem.

Nevertheless, announcing a large figure such as £80 billion does not explain what should disappear. Every item of government spending supports somebody’s income. A departmental economy may mean the closure of a local office, the loss of a bus service, fewer carers, less road maintenance or the disappearance of a small rural school.

Badly designed national cuts can weaken precisely those local structures that will be needed as the economy contracts.

What should be cut?

The first distinction should not be between public and private activity. It should be between the essential and the discretionary.

Britain will continue to need defence, basic healthcare, water, food production, essential transport, telecommunications, law, taxation and the maintenance of vital infrastructure. These functions may have to be delivered more simply, but they cannot safely be abandoned.

There is much greater scope for reducing the machinery constructed around them. Layers of administration, overlapping authorities, consultancy contracts, constant reorganisations, excessive reporting systems and grand projects with doubtful practical value all consume resources.

Government must also reconsider whether it can continue trying to manage every locality through elaborate national systems. Central administration is expensive because it attempts to impose uniform procedures upon places with very different circumstances.

Cutting local capacity while preserving central bureaucracy would be the worst possible outcome. It would leave people with fewer services but no greater ability to provide for themselves.

Spending must move closer to necessity

A shrinking economy requires a smaller national state, but not an absent one. The national government will still be responsible for functions that cannot sensibly be undertaken locally. These include defence, monetary affairs, national taxation, major railways, telecommunications and highly specialised medicine.

Many other activities should move closer to the locality. Food production and processing, basic care, housing maintenance, smaller schools, minor roads, local transport, repair workshops and some forms of energy supply can be organised nearer to the people who depend upon them.

This would not merely transfer existing bureaucracy from one tier to another. Localities would have to recover the freedom to decide what they genuinely need and what they can afford. Solutions would differ from place to place.

One locality might give priority to food production and a small bus network. Another might concentrate upon fisheries, forestry, water management or the repair of existing buildings. A town might convert empty shops into workshops, health rooms and food markets.

Success would no longer be judged solely by the amount of money spent. It would be judged by whether essential needs were met.

Welfare and the loss of employment

Reducing welfare spending is particularly difficult in a shrinking economy. Discretionary employment is likely to disappear before essential employment. Retailing, hospitality, advertising, entertainment, financial services and parts of the digital economy may contract as households have less money left after paying for food, energy and housing.

Simply withdrawing benefits will not create conventional jobs that the wider economy can no longer support.

The answer must include enabling people to undertake useful local work. This could mean food growing, care, maintenance, woodland management, repair, reuse and small-scale manufacturing. Some of this work may produce relatively little taxable money while making an important contribution to local survival.

A government that recognises only formal employment and monetary output will misinterpret this development as economic failure. In reality, it may represent the beginning of a more resilient economy.

A different political debate

The Telegraph is right that Britain cannot continue borrowing and spending as though growth will always rescue the public finances. But the argument cannot end with a competition over which party promises the largest cut.

The real debate concerns what the national state must continue to do, what it must stop doing and what it should allow localities to do for themselves.

Public spending will have to fall because the resources supporting it are becoming less affordable. Yet indiscriminate austerity would accelerate decline without creating anything to replace the services being lost.

The purpose of spending reductions should therefore be to preserve the essential national core while releasing local initiative. Government must become smaller at the centre while localities become more capable, practical and self-reliant.

Britain cannot cut its way back to the former growth economy. It must reduce its financial commitments while helping a different economy to emerge: one founded upon local resources, essential production, sufficiency and the quality of everyday life.