“Cuts” and spending rises

Will there be “cuts” when total public current spending is planned to increase by £92.5 billion over the next five years, rising every year during that period? Apparently so.

I guess there will be four sorts of cuts.

1. Sensible cuts because we do not need the public sector to do certain things. The end of ID cards, regional government and some quangos fall into that category for me.

2. Cuts in large planned increases in spending which the Labour government left in the plans but never had the money to carry through. Much defence procurement lies in this category. Labour kept reducing planned spending growth in defence, but left a long wish list of items they wanted to buy for a future date.

3. Cuts brought about by poor public sector management. Clearly there will be parts of the public sector that cannot manage within overall cash increases of 15% over five years. They are getting their retaliation in early, and claiming they will need to cut all sorts of things in order to live within the new tighter spending controls. It would be good if Ministers and Councillors would challenge this more, and show how it is possible to do a good job within the moderate cash increases available.

4. Cuts brought on in certain departments because other programmes are going to grow, taking up more of the increases in the totals than their proportion of spending. The EU budget, Overseas Aid, Health and debt interest programmes might all fall into this category.

So what can the government do to manage the process better?

1. The government should do more to explain that spending overall is rising, not falling. That makes public sector management easier, and should help morale. Too many people think the overall budget is being cut by 25% in cash terms, which is simply ludicrous.

2. The government should explain that Labour’s preferred medicine of more taxation is not feasible. Tax revenue is planned to go up by £176 billion a year in Year 5 compared with the last Labour year. That is a massive increase, which requires growth and good performamce from the private sector to deliver it. Taxing more would make it impossible.

3. Reduce the number of protected areas – especially by telling the EU that the EU budget and the UK contribution should go down, not up, in current circumstances. Sell more assets to reduce the amount of new debt taken out, thereby cutting the amount to be spent on interest on debt.

4. Find new ways to encourage and lift public sector managers so they can deliver good services for the modest extra sums on offer. Stop the language of gloom and cuts.

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34 Comments

  1. Alan Jutson
    Posted October 9, 2010 at 1:11 pm | Permalink

    I am now so confused as to the extent of the proposed cuts and rising budgets, that I have given up making comment until the spending review is published.

    Aware that increased interest payments on debt will cover some of the proposed increases in spending, but actual proposed cut percentages in Departmental budgets seem so wild in difference, that it is starting to become farcical.

    WILL WE EVER GET OUT OF THIS MESS ?

  2. tim
    Posted October 9, 2010 at 1:27 pm | Permalink

    The IPPR's Nick Pearce has written a good piece explaining why this doesn't tell the whole story. Worth a read.
    http://www.ippr.org/Blogs/NickPearce/WhyJohnRedwo

    reply: Nick Pearce says that if you take into account just half of total public spending and then adjust it for inflation there is a very small real decline – indeed there is – but that does not invalidate my exposure of the overall cash figures, which point to a small overall real increase in current public spending if inflation is on or below target.

    • tim
      Posted October 9, 2010 at 5:21 pm | Permalink

      I think the key point is that the cut to departmental expenditure – that is, spending on public services – is going to be significant in real terms.

      Faced with those who rightly worry about the speed and scale of cuts to public services, I don't think it is particularly helpful to counter that 'public spending' is going to increase; this isn't really the argument – the fundamental issue is the resourcing of public services in the coming years.

      Telling people that spending is rising is not going to raise morale in the public sector – because this 'additional' cash is not being spent on public service delivery (but primarily social security and debt interest).

      Reply: Not necessarily – this year the main services are all getting cash rises in excess of inflation

      • Acorn
        Posted October 10, 2010 at 11:42 am | Permalink

        "The government should do more to explain that spending overall is rising, not falling." [JR]
        You may have noticed that the Treasury has ventured on to "flickr". On the basis that a picture speaks a thousand words, could you encourage them to use this medium more. Particularly for the CSR, due shortly.
        Some of us have time to scan the red book; the pink book and the blue book, but these are no good for explaining matters in "family budget" terms. http://www.flickr.com/photos/hmtreasury/472331920

  3. Johnny
    Posted October 9, 2010 at 1:47 pm | Permalink

    Where is this £92.5 Billion coming frm in a recession?

    • Norman
      Posted October 9, 2010 at 11:31 pm | Permalink

      Tax increases! To be fair, if real terms spending stays level, and tax levels stay level, then if growth = inflation (highly doubtful given our high levels of taxation and more so if we decide to print more money) we shouldn't need tax increases to raise the £92bn.

      The £80bn that will be trimmed off the borrowing requirement is a different story.

      Mr Redwood put a post up a few days ago stating that virtually all the reduction in PSBR would be coming from tax increases and the figures do seem to bear this out.

  4. electro-kevin
    Posted October 9, 2010 at 3:13 pm | Permalink

    Unfortunately these cuts are going to be real to most of us regardless of which sector we work in.

    Whether or not those axed work in quangos or on pet Labour projects, they will be on the dole and those in the private sector who work on their house extensions, salons, cars and in their restaurants will be feeling the pinch too. We won't be feeling any benefit in terms of tax cuts either.

    This is the reality of an economy which failed to respect its own manufacturing base.

    And what point is there in a £26k ceiling on benefits other than to decieve voters ? I'd have to earn £35k to achieve that !

  5. Derek Buxton
    Posted October 9, 2010 at 3:16 pm | Permalink

    As to no. 3, I saw somewhere over the last few days that Baroness Ashton did not attend meetings at Brussels on these topics so no one upheld our interests. We have to ask why did they rely on her, her allegiance is to the EU not us.

  6. StevenL
    Posted October 9, 2010 at 3:33 pm | Permalink

    "Too many people think the overall budget is being cut by 25% in cash terms, which is simply ludicrous.

    I know public sector managers on £75k+ a year salaries that live in the fantasy world you describe.

    We had one of them in our team meeting the other day telling us that £70m of a £370m budget is going to be cut in the next two years. I asked him if these were cash or inflation adjusted figures and he just kind of looked confused and avoided answering the question.

    I asked him how he was arriving at the £70m figure and he just kind of waffled a bit about strategic managers and how he presumed they knew what they were doing. He's in charged of a budget of several £million and over a hundred staff and he didn't have a clue what was going on.

    • John C
      Posted October 10, 2010 at 7:33 pm | Permalink

      Probably because, like most management in the public sector (and in a lot of large PLCs to be fair) have not ran their own businesses where their own money is on the line.

      I think their natural instinct is to just cut numbers across the board (salami slice) whereas, in my opinion, every area of the public sector should have a root and branch rethink of what services they should be delivering and getting rid of those that are a total waste of time.

  7. Nick Leaton
    Posted October 9, 2010 at 3:55 pm | Permalink

    You've missed off default. You're planning on a partial default of state pensions by increasing the retirement age.

    Every year its raised, that is 5,000 pounds stolen from a future pensioner. After all they paid the money and you're reneging on it.

    You need to add that on your list of 'cuts'

    The government should explain that Labour’s preferred medicine of more taxation is not feasible.

    The only way of doing this is to give people the bill. Directly, in their name.

    Either an annual statement with the present value of their share of the debts. One per tax payer. That will really scare the horses.

    However, even here, the numbers of being fiddled. 8-9 years ago the civil service pension debts were 770 billion. The latest figure is still 770 billion. It doesn't take a monkey to work out that with inflation, the drop in yields, the increase in the number of workers, the forecasts for increased payouts, that the present value must have gone up. It's a lie.

    The fiddle, by the way, is discounting liabilities with a AA bond return, rather than inflation.

  8. Conrad Jones (Cheam)
    Posted October 9, 2010 at 4:12 pm | Permalink

    Will the Government Explain that more QE is also "more taxation"? Most people see Quantitative Easing as money or Gold Bars stacked up in a Bank Vault in the Band Of England and that all the Government has to do is ask Mervyn King for the key. This "money" is then lent to the Banks who then manage the loaning of it to the rest of us for Businesses and (mainly) Mortgage and Property loans.

    The fact that it is more debt which inflates the money supply (which is why we currently have inflation in the middle of a "Credit Crunch") and that Taxpayers and Savers foot the Bill in Low Interest Rates and Devaluation of the Currency – as well as stagnant Wages which are effectively pay cuts (whether Private or Public sector).

    Perhaps it is important to also note that – although spending is going up – inflation is also going up.

  9. simon
    Posted October 9, 2010 at 5:09 pm | Permalink

    How about saving money by cutting all University Information Technology courses ?

    There will be no need for UK I.T. workers when the EU signs the trade agreement with India in the next few days which will bind the UK to accepting unlimited numbers of Indian "skilled" workers and their families .

    Nobody cares about the plight of what remains of our I.T. industry or that skilled experienced software developers are lucky to earn as much as the starting package of a police constable .

    Who is going to pay for the schooling of their children , treatment of their extended family and everything else ?

    Perhaps in 5 years time when the same thing happens to engineering , architecture people will realise they are next .

    • Iain Gill
      Posted October 9, 2010 at 9:00 pm | Permalink

      this is top priority for government action

      IT business was bringing significant income into the UK not so long ago, and we really were leading by being the best, we have failed to protect our IP and flooded our own jobs market with 3rd world nationals

      simon, you should post about this over at "conservative home" website I'm sure they need to start taking this on more widely in the conservative party

      • simon
        Posted October 10, 2010 at 12:03 am | Permalink

        Ian , take a look at the "Mode 4" arrangements in the EU "Free Trade" agreement with India which is due to be signed in December .

        Apparently Cable , Osborne and Hague are keen on it and Cameron and May are gravely concerned because it means breaking the election promise on immigration .

        Just think about it , instead of non-EU immigration going down it will actually go up and thanks to Lisbon there is nothing they can do about it .

        It's about time William Hague came out .

        He had me fooled but now I can see he was a Europhile all along .

        Very , very disappointed in him .

        J.R. will you be covering the mode-4 arrangements in EU free trade agreements soon please ?

    • Alan Jutson
      Posted October 9, 2010 at 9:20 pm | Permalink

      Simon

      Engineering went abroad years ago,

      The Building industry here is now flooded with EU labour who work for £40 per day or less.

      Agriculture uses EU labour as part time pickers.

      Even Bankers are now moving out of the Country due to taxation.

      Not much left for us to do other than fill in forms!.

      • simon
        Posted October 9, 2010 at 11:56 pm | Permalink

        What jobs will there be left for British Citizens when Indians will no longer need Visa's to come and work in the UK ?

        All of the Coalitions initiatives will come to nothing if there aren't jobs for people to go to . Frank Field quietly said as much .

        The EU Trade agreement with India includes controversial "mode 4" arrangements for transnational companies .

        These go far beyond existing agreements and will allow Indian "services" companies to offer Accountancy , I.T. , Architecture , Engineering "services" to and within UK companies staffed ENTIRELY BY INDIAN NATIONALS ON UK SOIL .

        Once you have Indian managers they are going to recruit Indian staff .

        There are no quotas , no limits . Thanks to the Lisbon Treaty UK is unable to opt out and given we are the only English speaking country so the Indian workers will come here .

        The new world order gets the benefits ; opportunity to sell financial services to the growing Indian rich , increased licensing for knockoffs of patented drugs which India produces for the poor people of the World who can't afford it from our Big Pharma .

        • Iain Gill
          Posted October 10, 2010 at 9:45 pm | Permalink

          shout it from the roof tops ive been saying the same and so have many people i know

          and its worse than that

          we need to protect our own position

          it staggers me what is allowed at the moment and how its evolving

  10. Brigham
    Posted October 9, 2010 at 5:35 pm | Permalink

    It looks like George Osborne has cocked up the child benefit changes. My solution is the give a reduced child benefit for the first child only. I am sure this would be much simpler to administrate.

  11. Martin
    Posted October 9, 2010 at 5:49 pm | Permalink

    What you omit to mention is the elephant knows as Public Sector Pensions.

    How much of public spending each year is swallowed by by these ever increasing underfunded pensions?

    • StevenL
      Posted October 9, 2010 at 7:37 pm | Permalink

      This is an important point. If a 58 year old local government officer takes redundancy he will pocket £30k – £60k which has to be piad back by his old department over 5 years and the LA will have to make up his pension deficit for years on end.

      It's the cushy redundancy and retirement packages that will cause a lot of the 'cuts'.

    • P H
      Posted October 9, 2010 at 7:56 pm | Permalink

      Public sector pension tax is the answer adjusted so that public sector pensions become similar to private sector pension pots. Not a tax that could be avoided either as the government pay them. To include BBC and Quangos etc. of course.

  12. Murray
    Posted October 9, 2010 at 6:07 pm | Permalink

    I find this utterly confusing. Mr Redwood, can you please tell me if Thames Valley Police is receiving more, or less, funding next year than this year in cash terms? If there is less, which of the four categories does this fall into?

    • JimF
      Posted October 9, 2010 at 10:10 pm | Permalink

      I'm sure it will be receiving more Pounds Sterling which will buy less. Nice trick. Sorry to confuse, see my comment below.

  13. Anthony Scholefield
    Posted October 9, 2010 at 6:08 pm | Permalink

    I would like to tell my bank manager that I am cutting 'the structural part'of my overdraft oinly and in four years.
    In the meantime my overdraft will rise by 60%.

    These politicians are still out of touch with reality.

  14. simon_555
    Posted October 9, 2010 at 6:25 pm | Permalink

    Looks like we will see more reckless QE in the next couple of months. Madness.

  15. Iain Gill
    Posted October 9, 2010 at 8:54 pm | Permalink

    John,

    As regards your post here all I can say is thankyou. Brilliant.

    As regards the message to the public I think the govt should realise that much of the market is bent by govt and EC policy and its not true to say its all down to the private sector to generate jobs and wealth which can be taxed. The public understand this and we need to see more pressure for a regulatory and competitive environment which gives UK business a fair crack at the whip internationally, at the moment it looks like we hand over too much of our competitive position at a government level without even thinking about the consequences on our ability to compete.

    So thanks.

  16. David Julian Price
    Posted October 9, 2010 at 9:31 pm | Permalink

    John – you need to push relentlessly with this message – both on the BBC (not that they'll want to know!) and to government ministers who are responsible for presentation of the policies; you really have got to lobby them hard!

    Basically, the Labour opposition are doing their best to portray the cuts as being 25-40% in real terms of *current* spending; that is utterly wrong and is tendentious politicking; they must not be allowed to get away with this.

    If they are, we'll have the same situation to the eighties, where Maggie Thatcher was universally viewed as a harsh cutter of everything she surveyed. Actually, in real terms, spending went up. Yet ask 10 people (of any random sample of Brits) and 9 will probably tell you she made savage cuts and 'slashed' the state.

    During any Labour government, the imperative is to make the state bigger. That's what they're there for. And they have a receptive cheerleader for this project in the BBC. So Conservatives and Liberals have to work hard to counter their propaganda and bonkers world view.

  17. JimF
    Posted October 9, 2010 at 10:07 pm | Permalink

    The truth of the matter is that the increases you cite in public spending are on the back of Labour's reckless £200m QE process, which brought about the inflation we are experiencing. It is easy to increase spending on the back of inflation brought about by printed money, isn't it?
    Much more difficult to hold the value of your strong asset-backed currency (the Pound is now worth less in Swiss Franc and Gold terms than in the worst days of Labour, and with a higher inflation rate) and still increase spending, through having a decent economy firing on all cylinders and paying more tax at lower % rates. That's success, not just pretending to be spending more of a devaluing currency on less public services.

  18. Sabine McNeill
    Posted October 10, 2010 at 9:36 am | Permalink

    Dear Moderator

    what's the point commenting when you don't publish without explanation?

    What's the point asking for comments when you censor them?

    Budgets and their 'cuts' are mathematics and accounting, not ideology and beliefs, or would you rather believe than know?

    Yours sincerely,

    Sabine
    Mathematician and system analyst

  19. Lindsay McDougall
    Posted October 10, 2010 at 5:26 pm | Permalink

    I don't know why you persist in talking in cash terms when there is inflation about. If you strip out inflation, public expenditure will be broadly flat. An annex to the Budget Report provides three measures of inflation, CPI, RPI and the GDP deflator. Whichever one you use, the conclusion is the same public expenditure is planned to be broadly flat. This is why it is calculated that public expendiure will fall from 47.4% of GDP to 39.8%. It's a good policy, so why be in denial?

    Let me look briefly at the 4 protected areas:
    EU budget – The UK has already sold the pass by accepting the Lisbon Treaty. That was a very, very bad mistake. If not reversed it will lead to a Federal State. If you want a benchmark, US federal government expenditure is about 15% of GDP.
    Overseas Aid – Does it do the recipients any good at all? I think not.
    Health – What exactly is the ring fencing pledge? Is it in terms of % of GDP?
    Debt interest – A conservative fiscal position will minimise this problem.

    Reply: After a long period of relatively high public sector inflation, an option now is to have low or no public sector inflation.

  20. Johnny
    Posted October 11, 2010 at 12:18 am | Permalink

    John

    I still fail to comprehend how this Coalition Government can have created the atmosphere of massive cuts and Public Sector redunancies in their hundreds of thousands if it is TRUE as yuou say, that in cash terms over the next four to five years to 2015 that the Government Budget is £92.5 Billion higher than 2010. If this rising budget is going to 2015, how does this equate with cuts? The political narrative seems totally opposite to a rise in Public Expenditure which you have said is already in the Treasury Figures. What is this Government trying to do? Scare us into not spending or scare us into what?

  21. Ken
    Posted October 21, 2010 at 6:26 pm | Permalink

    I hope that Business Link is axed. All they seem to do is offer usless advice and seminars and keep pestering businesses.

  22. Ken
    Posted October 28, 2010 at 4:38 pm | Permalink

    As far as spending cuts are concerned I fully agree with David Cameron’s position on the eu budget. However I can also see the dilemma in trying to keep all sides of the coalition happy.

    Perhaps resurrecting the idea of a referendum on continued eu membership – something that even the Liberal Democrats called for – will be the best way to avoid disharmony, not only in the coalition but in the Labour Party as well.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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